BIG BENEFITS FOR INDEPENDENT BUSINESSES 2010 ANNUAL REPORT 2 (cid:33)(cid:66)(cid:79)(cid:85)(cid:84)(cid:0)(cid:45)(cid:69)(cid:84)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0) 4 (cid:35)(cid:72)(cid:65)(cid:73)(cid:82)(cid:77)(cid:65)(cid:78)(cid:0)(cid:6)(cid:0)(cid:35)(cid:37)(cid:47)(cid:108)(cid:83)(cid:0)(cid:50)(cid:69)(cid:80)(cid:79)(cid:82)(cid:84)(cid:0) 8 (cid:38)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:50)(cid:69)(cid:86)(cid:73)(cid:69)(cid:87)(cid:0)(cid:0) (cid:0) 11 (cid:38)(cid:73)(cid:86)(cid:69)(cid:0)(cid:57)(cid:69)(cid:65)(cid:82)(cid:0)(cid:50)(cid:69)(cid:86)(cid:73)(cid:69)(cid:87) CONTENTS PAGE 12 (cid:50)(cid:69)(cid:86)(cid:73)(cid:69)(cid:87)(cid:0)(cid:79)(cid:70)(cid:0)(cid:47)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83) 14 (cid:41)(cid:39)(cid:33)(cid:0)(cid:36)(cid:73)(cid:83)(cid:84)(cid:82)(cid:73)(cid:66)(cid:85)(cid:84)(cid:73)(cid:79)(cid:78) 18 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(cid:33)(cid:85)(cid:68)(cid:73)(cid:84)(cid:79)(cid:82)(cid:108)(cid:83)(cid:0)(cid:41)(cid:78)(cid:68)(cid:69)(cid:80)(cid:69)(cid:78)(cid:68)(cid:69)(cid:78)(cid:67)(cid:69)(cid:0)(cid:36)(cid:69)(cid:67)(cid:76)(cid:65)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78) 102 (cid:41)(cid:78)(cid:68)(cid:69)(cid:80)(cid:69)(cid:78)(cid:68)(cid:69)(cid:78)(cid:84)(cid:0)(cid:33)(cid:85)(cid:68)(cid:73)(cid:84)(cid:79)(cid:82)(cid:7)(cid:83)(cid:0)(cid:50)(cid:69)(cid:80)(cid:79)(cid:82)(cid:84) 104 (cid:33)(cid:51)(cid:56)(cid:0)(cid:33)(cid:68)(cid:68)(cid:73)(cid:84)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:0)(cid:41)(cid:78)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78) ANNUAL GENERAL MEETING (cid:16)(cid:18)(cid:14)(cid:16)(cid:25)(cid:14)(cid:18)(cid:16)(cid:17)(cid:16)(cid:0)(cid:115)(cid:0)(cid:34)(cid:65)(cid:76)(cid:76)(cid:82)(cid:79)(cid:79)(cid:77)(cid:0)(cid:18)(cid:0)(cid:38)(cid:79)(cid:85)(cid:82)(cid:0)(cid:51)(cid:69)(cid:65)(cid:83)(cid:79)(cid:78)(cid:83)(cid:0)(cid:40)(cid:79)(cid:84)(cid:69)(cid:76)(cid:0)(cid:115)(cid:0)(cid:18)(cid:14)(cid:19)(cid:16)(cid:80)(cid:77)(cid:0)(cid:115)(cid:0)(cid:17)(cid:25)(cid:25)(cid:0)(cid:39)(cid:69)(cid:79)(cid:82)(cid:71)(cid:69)(cid:0)(cid:51)(cid:84)(cid:82)(cid:69)(cid:69)(cid:84)(cid:12)(cid:0)(cid:51)(cid:89)(cid:68)(cid:78)(cid:69)(cid:89) (cid:55)(cid:69)(cid:0)(cid:67)(cid:79)(cid:78)(cid:83)(cid:73)(cid:68)(cid:69)(cid:82)(cid:0)(cid:79)(cid:85)(cid:82)(cid:83)(cid:69)(cid:76)(cid:86)(cid:69)(cid:83)(cid:0) (cid:84)(cid:72)(cid:69)(cid:0)(cid:67)(cid:72)(cid:65)(cid:77)(cid:80)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0) (cid:73)(cid:78)(cid:68)(cid:69)(cid:80)(cid:69)(cid:78)(cid:68)(cid:69)(cid:78)(cid:84)(cid:0)(cid:82)(cid:69)(cid:84)(cid:65)(cid:73)(cid:76)(cid:69)(cid:82)(cid:14) GOOD DISTRIBUTION NETWORK (cid:45) (cid:37) (cid:52) (cid:35) (cid:33) (cid:51) (cid:40) (cid:0) (cid:44) (cid:41) (cid:45) (cid:41) (cid:52) (cid:37) (cid:36) (cid:0) (cid:92) (cid:0) A B N 3 2 1 1 2 0 7 3 4 8 0 OUR BUSINESS MODEL WORKS TOWARDS GIVING EVERYBODY A FAIR SHARE... BETTER PRICE & RANGE 1 M E T C A S H A N N U A L R E P O R T 2 0 1 0 QUALITY, VALUE & COMMUNITY SUPPORT (cid:51)(cid:37)(cid:50)(cid:54)(cid:37)(cid:51) 20,000 (cid:73)(cid:78)(cid:0)(cid:55)(cid:69)(cid:83)(cid:84)(cid:69)(cid:82)(cid:78)(cid:0) (cid:33)(cid:85)(cid:83)(cid:84)(cid:82)(cid:65)(cid:76)(cid:73)(cid:65) (cid:51)(cid:37)(cid:50)(cid:54)(cid:37)(cid:51) 12,000 (cid:73)(cid:78)(cid:0)(cid:51)(cid:33)(cid:0)(cid:6)(cid:0)(cid:46)(cid:52) (cid:51)(cid:37)(cid:50)(cid:54)(cid:37)(cid:51) 27,000 (cid:73)(cid:78)(cid:0)(cid:54)(cid:73)(cid:67)(cid:84)(cid:79)(cid:82)(cid:73)(cid:65) (cid:51)(cid:37)(cid:50)(cid:54)(cid:37)(cid:51) 29,500 (cid:73)(cid:78)(cid:0)(cid:49)(cid:85)(cid:69)(cid:69)(cid:78)(cid:83)(cid:76)(cid:65)(cid:78)(cid:68) METCASH SERVICES 117,500 S T O R E S & C U S T O M E R S N A T I O N A L L Y (cid:51)(cid:37)(cid:50)(cid:54)(cid:37)(cid:51) 27,500 (cid:73)(cid:78)(cid:0)(cid:46)(cid:51)(cid:55) (cid:51)(cid:37)(cid:50)(cid:54)(cid:37)(cid:51) 1,500 (cid:73)(cid:78)(cid:0)(cid:52)(cid:65)(cid:83)(cid:77)(cid:65)(cid:78)(cid:73)(cid:65) ABOUT METCASH Metcash Limited (Metcash) is Australia's leading wholesale distribution and marketing company specialising in grocery, fresh produce, liquor and other fast moving consumer goods. Metcash has 4 divisions, often referred to as business pillars, each operating in a distinct wholesaling industry segment: › › › IGA Distribution; Australian Liquor Marketers; Campbells Wholesale; and › Mitre 10 All business pillars are fully owned by Metcash with the exception of Mitre 10, of which Metcash owns 50.1%. (cid:47)(cid:85)(cid:82)(cid:0)(cid:54)(cid:65)(cid:76)(cid:85)(cid:69)(cid:83) Metcash's customers are predominantly independently owned grocery and liquor stores. With the acquisition of a majority interest in the Mitre 10 Group in March 2010, Metcash has broadened its customer range to include independent hardware stores. Our core values represent who we are and underpin how we do business. These values are at the forefront as we interact with each other and our business partners. We also measure how well we live the values in our performance management processes. Metcash champions the interests of the independent grocery, liquor and hardware sectors through its core competencies of buying, merchandising, marketing, brand building, distribution logistics and warehousing. With the support of its customers, independent retailers, Metcash is the 'third force' in the Australian grocery retailing market. (cid:47)(cid:85)(cid:82)(cid:0)(cid:48)(cid:82)(cid:73)(cid:79)(cid:82)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83) High service levels remain at the core of Metcash’s success. If our customers are not successful, we are not successful. The company continues to focus on teamwork and staff training programs for the benefit of employees, customers and stakeholders. The company’s commitment to its employees at every level, clear communication channels, regular briefings and an emphasis on training programs have reinforced the core values of the company and contributed to the rising status of the Metcash Group. (cid:47)(cid:85)(cid:82)(cid:0)(cid:39)(cid:79)(cid:65)(cid:76) Our goal is to provide big benefits for independent businesses. We supply the buying power, merchandising, marketing, brand building, distribution logistics and warehousing which supports independents in the face of strong competition. *Championing the Customer * Our Stakeholders are Entitled to Added Value * Responsibility and Personal Accountability * Empowering our People and Supporting our Communities *VALUES ARE NOTHING WITHOUT INTEGRITY H S A C T E M T U O B A 2 0 1 0 2 T R O P E R L A U N N A H S A C T E M WE FOCUS ON OUR CUSTOMERS Mission Statement (cid:47)(cid:85)(cid:82)(cid:0)(cid:77)(cid:73)(cid:83)(cid:83)(cid:73)(cid:79)(cid:78)(cid:0)(cid:73)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:66)(cid:69)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:77)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) (cid:68)(cid:73)(cid:83)(cid:84)(cid:82)(cid:73)(cid:66)(cid:85)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:76)(cid:69)(cid:65)(cid:68)(cid:69)(cid:82)(cid:0)(cid:73)(cid:78)(cid:0)(cid:70)(cid:79)(cid:79)(cid:68)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:79)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0) (cid:70)(cid:65)(cid:83)(cid:84)(cid:13)(cid:77)(cid:79)(cid:86)(cid:73)(cid:78)(cid:71)(cid:0)(cid:67)(cid:79)(cid:78)(cid:83)(cid:85)(cid:77)(cid:69)(cid:82)(cid:0)(cid:71)(cid:79)(cid:79)(cid:68)(cid:83)(cid:14) Company Pillars IGA DISTRIBUTION IGA Distribution (IGA›D) is Australia's largest grocery wholesale distribution and marketing company with six major distribution centres supplying grocery products (dry, chilled, frozen and fresh), produce out of nine dedicated fresh produce warehouses and general merchandise to independent businesses nationally. AUSTRALIAN LIQUOR MARKETERS Australian Liquor Marketers (ALM) is a broad range liquor wholesaler supplying over 15,000 hotels, liquor stores, restaurants and other licensed premises throughout Australia. ALM's wholly owned subsidiary Tasman Liquor Company operates in a similar market in New Zealand. CAMPBELLS WHOLESALE MITRE 10 Campbells Wholesale (CW) through its national network of over 30 warehouses, is a multi- format distributor of grocery, confectionery, tobacco, liquor, soft drinks and foodservice products. Mitre 10 is Australia's only independent home improvement and hardware wholesaler with an iconic independent retail network of over 430 Mitre 10 and True Value Hardware stores. A B O U T M E T C A S H 3 M E T C A S H A N N U A L R E P O R T 2 0 1 0 CHAIRMAN & CEO'SREPORT (cid:2)(cid:55)(cid:69)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:80)(cid:76)(cid:69)(cid:65)(cid:83)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:65)(cid:78)(cid:78)(cid:79)(cid:85)(cid:78)(cid:67)(cid:69)(cid:0)(cid:84)(cid:72)(cid:65)(cid:84)(cid:0)(cid:65)(cid:0)(cid:252)(cid:78)(cid:65)(cid:76)(cid:0)(cid:68)(cid:73)(cid:86)(cid:73)(cid:68)(cid:69)(cid:78)(cid:68)(cid:0)(cid:79)(cid:70)(cid:0) (cid:17)(cid:21)(cid:0)(cid:67)(cid:69)(cid:78)(cid:84)(cid:83)(cid:0)(cid:80)(cid:69)(cid:82)(cid:0)(cid:83)(cid:72)(cid:65)(cid:82)(cid:69)(cid:0)(cid:72)(cid:65)(cid:83)(cid:0)(cid:66)(cid:69)(cid:69)(cid:78)(cid:0)(cid:68)(cid:69)(cid:67)(cid:76)(cid:65)(cid:82)(cid:69)(cid:68)(cid:14)(cid:2) (cid:55)(cid:69)(cid:0)(cid:65)(cid:82)(cid:69)(cid:0)(cid:80)(cid:76)(cid:69)(cid:65)(cid:83)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:65)(cid:78)(cid:78)(cid:79)(cid:85)(cid:78)(cid:67)(cid:69)(cid:0)(cid:84)(cid:72)(cid:65)(cid:84)(cid:0) (cid:84)(cid:72)(cid:69)(cid:0)(cid:18)(cid:16)(cid:17)(cid:16)(cid:0)(cid:252)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82)(cid:0)(cid:87)(cid:65)(cid:83)(cid:0)(cid:86)(cid:69)(cid:82)(cid:89)(cid:0) (cid:83)(cid:85)(cid:67)(cid:67)(cid:69)(cid:83)(cid:83)(cid:70)(cid:85)(cid:76)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:84)(cid:72)(cid:65)(cid:84)(cid:0)(cid:45)(cid:69)(cid:84)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:80)(cid:79)(cid:83)(cid:84)(cid:69)(cid:68)(cid:0)(cid:73)(cid:84)(cid:83)(cid:0) (cid:69)(cid:76)(cid:69)(cid:86)(cid:69)(cid:78)(cid:84)(cid:72)(cid:0)(cid:83)(cid:85)(cid:67)(cid:67)(cid:69)(cid:83)(cid:83)(cid:73)(cid:86)(cid:69)(cid:0)(cid:82)(cid:69)(cid:67)(cid:79)(cid:82)(cid:68)(cid:0)(cid:80)(cid:82)(cid:79)(cid:252)(cid:84)(cid:14)(cid:0)(cid:52)(cid:72)(cid:73)(cid:83)(cid:0) (cid:87)(cid:65)(cid:83)(cid:0)(cid:65)(cid:67)(cid:72)(cid:73)(cid:69)(cid:86)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:70)(cid:65)(cid:67)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:76)(cid:79)(cid:87)(cid:0)(cid:67)(cid:79)(cid:83)(cid:84)(cid:0) (cid:73)(cid:78)(cid:268)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:73)(cid:78)(cid:0)(cid:67)(cid:79)(cid:82)(cid:69)(cid:0)(cid:71)(cid:82)(cid:79)(cid:67)(cid:69)(cid:82)(cid:89)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:76)(cid:73)(cid:81)(cid:85)(cid:79)(cid:82)(cid:0) (cid:67)(cid:65)(cid:84)(cid:69)(cid:71)(cid:79)(cid:82)(cid:73)(cid:69)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:82)(cid:69)(cid:67)(cid:69)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)(cid:69)(cid:70)(cid:70)(cid:69)(cid:67)(cid:84)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0) (cid:84)(cid:72)(cid:69)(cid:0)(cid:71)(cid:79)(cid:86)(cid:69)(cid:82)(cid:78)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:83)(cid:84)(cid:73)(cid:77)(cid:85)(cid:76)(cid:85)(cid:83)(cid:0)(cid:80)(cid:65)(cid:67)(cid:75)(cid:65)(cid:71)(cid:69)(cid:12)(cid:0)(cid:87)(cid:72)(cid:73)(cid:67)(cid:72)(cid:0) (cid:66)(cid:79)(cid:79)(cid:83)(cid:84)(cid:69)(cid:68)(cid:0)(cid:83)(cid:65)(cid:76)(cid:69)(cid:83)(cid:0)(cid:73)(cid:78)(cid:0)(cid:18)(cid:16)(cid:16)(cid:25)(cid:14) During 2009, the economic and financial environment was uncertain. Against this background of uncertainty, wholesale sales rose by 4.9% from $10.98 billion to $11.52 billion, lifting reported profit after tax by 12.4% from $202.5 million to $227.6 million. EBITA grew 8.6% to $415.4 million and profit after tax, pre non-recurring item, rose 8.5% to $238.4 million. Operating cash flow rose 18.8% to $294.7 million. Included in this result was a non-recurring item, a provision of $15.4 million to restructure the Campbells Cash & Carry and Wholesale Distribution businesses in order to reduce costs and provide an effective base for current and anticipated market demand. This is discussed in more detail later in the report. The cost of doing business (CODB) was carefully controlled in each of the businesses and this proved to be an effective insurance measure over the year. This has been achieved through supply chain improvement, cost control and warehouse and technology innovation. The Metcash balance sheet remains strong and all necessary borrowing facilities are in place. INCREASE OF WHOLESALE SALES TO $11.5 We are pleased to announce that a final dividend of 15 cents per share has been declared. This brings the total dividend for 2010 to 26 cents fully franked, an increase of 8.3% on the 2009 financial year dividends. The Company’s bid to obtain 50.1% of the Mitre 10 business was successful with Metcash obtaining 50.1% voting power in Mittenmet, the new holding company for the Mitre 10 Group. This was achieved through the Mitre 10 Schemes of Arrangement which became effective on 25 March 2010. 98% of Mitre 10’s shareholders voted in favour of the bid showing their confidence in the Metcash business model and our ability to help them compete more effectively in the home improvement market. Metcash has the right to acquire the remaining 49.9% of the Mitre 10 Group in 2012 or 2013, based on an agreed multiple of earnings. This provides Mitre 10 retailers with an incentive to maintain their loyalty and partner Metcash in increasing the profitability of the Mitre 10 Group and their businesses. The acquisition was attractive as it provides an opportunity to apply the Metcash business model to improve the performance of Mitre 10 and assist Mitre 10 retailers. In the same way that the grocery and liquor customers of the three Metcash business pillars are independent retailers, so are the hardware customers of Mitre 10. Over the next two years, the business principles that have worked well within the Metcash business model will be fully implemented within Mitre 10. This will provide Mitre 10 retailers with an enhanced product range, more cost effective and efficient logistics, improved purchasing power and access to financial resources to help fund new stores and the extension and refurbishment of existing stores. Three experienced Metcash executives have been seconded to Mitre 10 to fill the roles of CEO, General Manager Commercial and General Manager Merchandise and Marketing. On 1 July 2010 the Company announced it had entered into an agreement with Pick n Pay Retailers (Pty) Limited to purchase the Franklins supermarket chain in New South Wales for approximately $215 million. The agreement is subject to, among other things, ACCC approval and will be funded from existing Metcash bank facilities. It is proposed to sell the stores on completion (expected by 30 September 2010) to independent retailers. This might take several months to complete and Metcash will operate the stores in the intervening period. The acquisition is expected to add more than $500 million per annum of wholesale sales to Metcash’s turnover and increase the New South Wales market share of Metcash supplied retailers from 11% to 17%. Each of the Metcash business pillars has business models that strive to provide their independent retailer customers with the services and efficiencies of their chain store competitors. There are many services that, on their own, independent retailers would not be able to access due to scale of operations or technological restrictions but are available to them through the Metcash business model. Metcash can only achieve success if its customers are successful. IGA Distribution (IGA>D), the Metcash grocery distribution business, had another successful year with sales on a comparable store basis increasing by 4.1% and profit (EBITA) growing 9.8% to $346.6 million. Food cost inflation at 2.4% was lower than the 4.4% experienced in 2009. Despite strong competition, market share (defined dry grocery categories) in the April 2010 quarter of 19.9% was above the 19% of the same quarter in 2009. BILLION T R O P E R S ' O E C & N A M R I A H C 4 0 1 0 2 T R O P E R L A U N N A H S A C T E M THANK YOU (cid:55)(cid:69)(cid:0)(cid:87)(cid:79)(cid:85)(cid:76)(cid:68)(cid:0)(cid:76)(cid:73)(cid:75)(cid:69)(cid:0)(cid:84)(cid:79)(cid:0)(cid:84)(cid:72)(cid:65)(cid:78)(cid:75)(cid:0)(cid:79)(cid:85)(cid:82)(cid:0)(cid:70)(cid:69)(cid:76)(cid:76)(cid:79)(cid:87)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:83)(cid:12)(cid:0) (cid:69)(cid:77)(cid:80)(cid:76)(cid:79)(cid:89)(cid:69)(cid:69)(cid:83)(cid:12)(cid:0)(cid:67)(cid:85)(cid:83)(cid:84)(cid:79)(cid:77)(cid:69)(cid:82)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:83)(cid:85)(cid:80)(cid:80)(cid:76)(cid:73)(cid:69)(cid:82)(cid:83)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:84)(cid:72)(cid:69)(cid:73)(cid:82)(cid:0) (cid:71)(cid:79)(cid:79)(cid:68)(cid:0)(cid:67)(cid:79)(cid:85)(cid:78)(cid:83)(cid:69)(cid:76)(cid:12)(cid:0)(cid:72)(cid:65)(cid:82)(cid:68)(cid:0)(cid:87)(cid:79)(cid:82)(cid:75)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:83)(cid:85)(cid:80)(cid:80)(cid:79)(cid:82)(cid:84)(cid:0)(cid:68)(cid:85)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0) (cid:84)(cid:72)(cid:69)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82)(cid:14) (cid:51)(cid:72)(cid:65)(cid:82)(cid:69)(cid:0)(cid:80)(cid:82)(cid:73)(cid:67)(cid:69)(cid:0) (cid:8)(cid:82)(cid:69)(cid:13)(cid:66)(cid:65)(cid:83)(cid:69)(cid:68)(cid:9) 6 5 4 3 2 1 0 (cid:52)(cid:51)(cid:50)(cid:0)(cid:85)(cid:78)(cid:68)(cid:69)(cid:82)(cid:0) (cid:67)(cid:85)(cid:82)(cid:82)(cid:69)(cid:78)(cid:84)(cid:0) (cid:77)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0) (cid:86)(cid:83)(cid:14)(cid:0)(cid:77)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84) 33% JAN 01 JUL 02 FEB 04 AUG 05 MAR07 OCT 08 APR 10 MTS TSR ASX 200 TSR 9% During the year, IGA>D’s customers opened 53 new stores and refurbished or extended a further 101 stores. As targeted, IGA>D’s total Fresh sales reached $1 billion per annum, with fresh produce now contributing $400 million. Customer patronage is increasing with 730 supermarkets and 900 foodservice customers now being supplied. Meat and delicatessen sales each grew 24%, with bakery leading the way with 34% growth. Australian Liquor Marketers’ (ALM) sales for the year were static at $2.6 billion in a market demonstrating lower demand than in 2009 and the absence of price inflation. A strong focus on cost reduction with higher warehouse labour and operating efficiency levels and stock level optimisation produced an increase in profitability with EBITA rising 6.9% to $36.1 million. The Independent Brands Australia (IBA) marketing strategy continues to underpin sales volumes with banner groups ‘IGA Plus Liquor’ purchases growing by 11% and ‘Cellarbrations’ by 6%. IBA continues to focus on improving the banner groups’ compliance and in-store standards and expects to increase the IBA network by a further 50 outlets in 2011. Campbells Wholesale experienced growth in sales of 1.5% to $1.68 billion whilst EBITA fell 12.5% to $28.8 million. Campbells Wholesale had four business arms, Campbells Cash and Carry which mainly supplies metropolitan local convenience retailers, Campbells Wholesale Distribution which provides warehouse distribution in regional areas, CSD which services the ‘Modern Petrol and Convenience’ sectors (e.g. 7/11, ‘Lucky 7’) and FoodLink which is a foodservice business. The Cash and Carry business has been affected over time by the consumer switch from local convenience shopping to value or discounting shopping. The decision was taken to restructure the business to recognise this trend and merge it with Campbells Wholesale Division to provide a cost effective distribution base to meet current and expected demand patterns. The FoodLink foodservice business boosted sales 9.8%, whilst distribution to modern branded convenience and petrol outlets has grown 4.5%. Left to Right: › Andrew Reitzer (CEO Metcash Group of Companies); › Carlos S dos Santos (Non-executive Chairman). $ P E R A N N U M This division continues to look to reduce its cost of doing business, whilst pursuing higher market share in the Foodservice and Modern Petrol and Convenience sectors. 1IGA›D's TOTAL FRESH SALES REACHED BILLION C H A I R M A N & C E O ' S R E P O R T 5 M E T C A S H A N N U A L R E P O R T 2 0 1 0 CHAIRMAN & CEO'S REPORT CONTINUED... THE METCASH BUSINESS MODEL IS RESILIENT SALES UP (cid:37)(cid:65)(cid:67)(cid:72)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:45)(cid:69)(cid:84)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:66)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:69)(cid:83)(cid:0)(cid:80)(cid:69)(cid:82)(cid:70)(cid:79)(cid:82)(cid:77)(cid:69)(cid:68)(cid:0) (cid:87)(cid:69)(cid:76)(cid:76)(cid:0)(cid:68)(cid:85)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82)(cid:0)(cid:68)(cid:69)(cid:77)(cid:79)(cid:78)(cid:83)(cid:84)(cid:82)(cid:65)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0) (cid:82)(cid:69)(cid:83)(cid:73)(cid:76)(cid:73)(cid:69)(cid:78)(cid:67)(cid:69)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:45)(cid:69)(cid:84)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:66)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:0)(cid:77)(cid:79)(cid:68)(cid:69)(cid:76)(cid:12)(cid:0) (cid:73)(cid:78)(cid:0)(cid:71)(cid:79)(cid:79)(cid:68)(cid:0)(cid:84)(cid:73)(cid:77)(cid:69)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:66)(cid:65)(cid:68)(cid:14) (cid:40)(cid:69)(cid:65)(cid:76)(cid:84)(cid:72)(cid:12)(cid:0)(cid:51)(cid:65)(cid:70)(cid:69)(cid:84)(cid:89)(cid:12)(cid:0)(cid:37)(cid:78)(cid:86)(cid:73)(cid:82)(cid:79)(cid:78)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:0) (cid:65)(cid:78)(cid:68)(cid:0)(cid:35)(cid:79)(cid:77)(cid:77)(cid:85)(cid:78)(cid:73)(cid:84)(cid:89)(cid:0)(cid:8)(cid:40)(cid:51)(cid:37)(cid:35)(cid:9) Metcash’s HSEC programs continue to be an important area of focus. The programs encompass – care for our people, with workplace engagement, development and competency, health services and safety; environmental management; product safety and public health. We have continued to develop our people through talent management and leadership development strategies. This strategy allows us to identify and retain high quality talent in our businesses. The Metcash ‘Pro-fit Program’ offers annual flu vaccinations and health checks, counselling services, holiday childcare and flexible working arrangements. Safety at work is a high priority in the Company’s operational activity and the implementation of the ‘Mission Zero’ five year plan is an important element in our OH&S strategy. The results for the 2010 year were positive with reductions in the number of Lost Time Injuries, lost hours and the Lost Time Injury Frequency Rate. We continue to track our carbon footprint and are pleased to report that we were fully compliant with the NGER Act. (cid:55)(cid:65)(cid:89)(cid:0)(cid:38)(cid:79)(cid:82)(cid:87)(cid:65)(cid:82)(cid:68) Last year we advised that we would be looking for major acquisition opportunities which complement Metcash’s business model and core competencies. We believe our partnership with Mitre 10 has achieved this and look forward to sharing the competencies of our business model with the Mitre 10 team. We will continue to look for acquisition opportunities which are in line with Metcash’s business model and core competencies. Each of the Metcash businesses continues to refine the cost of doing business and maximising sales opportunities. We continue to invest in our people to ensure a high level of service to our customers, the independent retailers. T R O P E R S ' O E C & N A M R I A H C 6 0 1 0 2 T R O P E R L A U N N A H S A C T E M 9.8% FOR FOODLINK (cid:47)(cid:85)(cid:82)(cid:0)(cid:51)(cid:72)(cid:65)(cid:82)(cid:69)(cid:72)(cid:79)(cid:76)(cid:68)(cid:69)(cid:82)(cid:83) Thank you to our shareholders for your rt. investment and support. With your help, we have already achieved significant milestones and continue to assist independent businesses to optimise their results. 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 Non-executive Chairman Andrew Reitzer CEO Metcash Group of Companies Strategies to maintain talent We have continued to develop our people through talent management and leadership development strategies. Succession Planning In February of this year, it was announced that Andrew would remain as CEO for the next three years when he would then retire. Having been Chairman of Metcash since 1998, I feel that the time is approaching to step aside and pass the Chair. In order to provide a smooth transition and avoid appointing a new Chairman and CEO at the same time, I have decided to retire as a Director at the close of the 2010 Annual General Meeting. The Board has decided that Peter Barnes, the Deputy Chairman, will replace me as Chairman and work with Andrew to develop candidates to replace him as CEO in three years' time. A search is currently being undertaken to select Board member candidates with the appropriate skill and experience to help guide Metcash in the future. Michael Jablonski has also decided to retire from the Board at the conclusion of the 2010 Annual General Meeting after serving as a Director for twelve years. During that time he has provided tremendous value to the Board from both his personal contribution and from his wide knowledge of the grocery industry and merchandising. Michael has said that he would like to spend more time working and focusing on the numerous committees and internal boards that he sits on such as Mittenmet and Mitre 10, Metfood, and IGA Retail Network. PARTNERSHIP WITH MITRE 10 WAS OUR MAJOR ACQUISITION IN 2010 Michael will remain as a member of the Executive Team in his role as Group Merchandise Director. It has been a privilege to have been Chairman of the Metcash business for the past twelve years during which the company has been transformed from the struggling wholesaler that it then was into the successful $12 billion business that it now is. I am confident that, with the strength and talent of the management team and Board, Metcash will continue to grow and thrive over the coming years. I would like to express my sincere thanks to Andrew Reitzer as well as to present and past Directors, management, staff, customers and suppliers who have all worked so hard to make Metcash the company that it now is. Carlos S dos Santos Non-executive Chairman C H A I R M A N & C E O ' S R E P O R T 7 M E T C A S H A N N U A L R E P O R T 2 0 1 0 FINANCIAL REVIEW (cid:4) (cid:52) (cid:47) (cid:52)(cid:33) (cid:44) (cid:0) (cid:50) (cid:37) (cid:54) (cid:37) (cid:46) (cid:53) (cid:37) (cid:0) (cid:50) (cid:47) (cid:51) (cid:37)(cid:0) (cid:0) (cid:34) (cid:57) (cid:0) (cid:20)(cid:14)(cid:25) (cid:5) (cid:0) (cid:38) (cid:50) (cid:47) (cid:45) (cid:0) (cid:4)(cid:17)(cid:17)(cid:14)(cid:17) (cid:0) (cid:34) (cid:41) (cid:44) (cid:44) (cid:41) (cid:47) (cid:46)(cid:0) (cid:0) (cid:52) (cid:47) (cid:0) (cid:4)(cid:17)(cid:17)(cid:14)(cid:22) (cid:0) (cid:34) (cid:41) (cid:44) (cid:44) (cid:41) (cid:47) (cid:46) (cid:0) (cid:45) (cid:33) (cid:43) (cid:41) (cid:46) (cid:39) (cid:0) (cid:33) (cid:4)541 (cid:45) (cid:41) (cid:44) (cid:44) (cid:41) (cid:47) (cid:46) (cid:0) (cid:36) (cid:47) (cid:44) (cid:44) (cid:33) (cid:50) (cid:0) (cid:41) (cid:46) (cid:35) (cid:50) (cid:37) (cid:33) (cid:51) (cid:37) UP BY 4.9% Wholesale sales ($m) 11,517.4 0 . 4 7 9 0 1 , . 0 5 4 0 0 1 , . 1 1 5 4 9 , . 0 5 0 7 7 , 06 07 08 09 10 UP BY 4.9% Total revenue ($m) 11,608.1 UP BY 4.5% Market share (%) 19.9 . 9 5 6 7 9 , . 4 2 0 2 0 1 , . 5 7 6 0 1 1 , . 5 8 1 . 6 8 1 . 8 8 1 . 0 9 1 . 0 2 5 2 8 , W E I V E R L A I C N A N I F 8 0 1 0 2 T R O P E R L A U N N A H S A C T E M 06 07 08 09 10 06 07 08 09 10 UP BY 4.9% Total sales revenue ($m) 11,517.4 DOWN BY 1.3% Cost of doing business/GP (%) 61.6 6 . 1 8 9 , 0 1 8 . 4 9 6 , 9 1 . 6 1 1 , 0 1 4 . 4 1 2 , 8 2 . 7 6 9 . 6 6 2 . 5 6 4 . 2 6 06 07 08 09 10 06 07 08 09 10 WHOLESALE SALES ROSE 4.9%, LIFTING REPORTED PROFIT AFTER TAX BY 12.4% F R O M (cid:4) (cid:18) (cid:16) (cid:18) (cid:14) (cid:21) M I L L I O N T O (cid:4) (cid:18) (cid:18) (cid:23) (cid:14) (cid:22) M I L L I O N UP BY 12.4% Profit after tax ($m) 227.6 4 . 7 9 1 5 . 2 0 2 6 . 8 5 1 2 . 1 8 06 07 08 09 10 UP BY 18.8% Operating cash flow ($m) 294.7 . 7 2 4 2 . 6 7 9 1 . 5 7 7 1 . 1 8 4 2 06 07 08 09 10 UP BY 8.5% EBITA ($m) 415.4 . 5 2 8 3 . 3 1 4 3 . 9 8 8 2 . 7 3 2 2 06 07 08 09 10 UP BY 8.3% (cid:16) (cid:14) (cid:23) (cid:17) (cid:21) (cid:14) (cid:17) (cid:17) (cid:36)(cid:73)(cid:86)(cid:73)(cid:68)(cid:69)(cid:78)(cid:68)(cid:83) (cid:80)(cid:69)(cid:82)(cid:0)(cid:83)(cid:72)(cid:65)(cid:82)(cid:69) (cid:8)(cid:67)(cid:69)(cid:78)(cid:84)(cid:83)(cid:9) 26.0 (cid:16) (cid:14) (cid:20) (cid:18) (cid:16) (cid:14) (cid:17) (cid:18) Cash Flow Increase by 18.8% Strong operating cash generation during the year, with operating cash flows increasing by $46.6 million to $294.7 million. UP BY 11% Earnings per share (cents) 29.7 9 . 5 2 5 . 6 2 1 . 1 2 7 . 3 1 06 07 08 09 10 06 07 08 09 10 F I N A N C I A L R E V I E W 9 M E T C A S H A N N U A L R E P O R T 2 0 1 0 FINANCIAL REVIEW CONTINUED... (cid:38)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:48)(cid:69)(cid:82)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:78)(cid:67)(cid:69) In an uncertain economic environment, the Group continues to challenge its business model and cost structures. For a number of years, the traditional Cash & Carry wholesale market has been in decline. This is a global trend where unbranded convenience stores are no longer able to compete with modern organised formats, and consumers’ desire for value has caused a change in shopping behaviours. The impact of this trend, combined with increasing fixed network costs, resulted in a number of Cash & Carry warehouses no longer being viable and a decision was taken in March 2010 to close 8 of these sites. The site closures were enacted by 30 April. DIVIDENDS PER SHARE UP BY 8.3% A one off cost of closure and restructure of $15.4m ($10.8m after tax) has been incurred in the current year. Whilst this was a painful action to take, it was necessary to ensure the ongoing health and vitality of the Campbells Wholesale business and is expected to generate an additional $4 million to $5 million in EBIT annually as a result. The Group’s wholesale sales continued to grow at 4.9%, despite persistent low inflation growth in core grocery categories and the receding effects of the Government Stimulus Package, which had boosted sales in 2009. The Group’s acquisition of the Mitre 10 business on 25 March 2010 resulted in the inclusion of one month's trading for that group, thus having only a minor impact on overall sales and EBIT growth. In addition, the group has continued to focus on cost reductions, with Cost of Doing Business as a percentage of Gross Profit reducing by a further W E I V E R L A I C N A N I F 10 0 1 0 2 T R O P E R L A U N N A H S A C T E M Well positioned The capital injection of $55.2m into Mitre 10 sees that business is reinvigorated and well positioned for future growth. 83 basis points this year, continuing from the 280 basis point reduction in 2009. This has been achieved through continuous focus on cost control and supply chain improvement and is in spite of substantial increases in fixed costs such as rent and utilities. As a result of these factors, the Group was able to achieve its market guidance, reporting an Underlying Earnings of 32 cents per share, an increase of 8.4% on the prior year. A final dividend of 15 cents per share was declared bringing the total dividend declared for the 2010 financial year to 26 cents per share, an increase of 8.3% on 2009. (cid:38)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:48)(cid:79)(cid:83)(cid:73)(cid:84)(cid:73)(cid:79)(cid:78) Since the acquisition of the Australian operations of FAL in 2005, the Group has long sought out a fourth business pillar to complement the existing businesses. In March 2010, the necessary approvals were obtained to enable the completion of the acquisition of 50.1% of the Mitre 10 business, thus giving the Group a fourth business pillar in hardware distribution. The capital injection of $55.2 million into Mitre 10 sees that business reinvigorated and well positioned for future growth. In addition, the Group’s previously announced plan to complete its national produce network was finalised in July 2009 with the acquisition of the City Fruit business in Adelaide. The Group’s working capital position has stabilised substantially since the prior year, where a number of one-off impacts resulted in a substantial increase. The profile of debtor days and creditor payment days is impacted slightly by the inclusion of the Mitre 10 business, and partly negated by the increased product mix of fresh produce, where typically shorter payment terms exist. The continued take up of the American Express Payment facilities by customers has also seen an overall reduction in underlying debtor days. The Group has drawn down an additional $50 million in net debt during the period, primarily to finance the Mitre 10 acquisition and other business combinations. 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. (cid:35)(cid:65)(cid:83)(cid:72)(cid:0)(cid:38)(cid:76)(cid:79)(cid:87) The Group has continued its strong operating cash generation during the year, with operating cash flows increasing by $46.6 million to $294.7 million. The prior year operating cash flows contained a number of one off impacts including the working capital adjustment noted above and a change in the Group’s tax paying position. As such, the current period represents a more underlying cash flow. Metcash maintains its continued focus on reinvestment, with a total of $133.1 million being committed to the acquisition of a fourth business pillar, the completion of the produce network and other Fresh opportunities as well as substantial investment in software for both financial applications (SAP) and operating systems, the Power Enterprise package being successfully deployed into the Western Australian operations in January 2010. The Group has maintained a high dividend payout ratio (in excess of 80%) and dividend payments for the year totalled $191.6 million. FIVE YEAR REVIEW (cid:0) (cid:0) (cid:0) (cid:18)(cid:16)(cid:17)(cid:16)(cid:0)($m)(cid:0) (cid:0) (cid:18)(cid:16)(cid:16)(cid:25)(cid:0)($m)(cid:0) (cid:0) (cid:18)(cid:16)(cid:16)(cid:24)(cid:0)($m)(cid:0) (cid:50)(cid:69)(cid:83)(cid:84)(cid:65)(cid:84)(cid:69)(cid:68) (cid:18)(cid:16)(cid:16)(cid:23)(cid:0)($m)(cid:0) (cid:18)(cid:16)(cid:16)(cid:22)(cid:0)($m) (cid:41)(cid:78)(cid:67)(cid:79)(cid:77)(cid:69)(cid:0)(cid:51)(cid:84)(cid:65)(cid:84)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84) Net sales Earnings before interest and taxation Interest, net Operating profit before tax Profit after tax (cid:34)(cid:65)(cid:76)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0)(cid:51)(cid:72)(cid:69)(cid:69)(cid:84) Metcash shareholder equity Net tangible assets per share (cents) Gearing (debt/debt+equity) (%) (cid:51)(cid:72)(cid:65)(cid:82)(cid:69)(cid:0)(cid:51)(cid:84)(cid:65)(cid:84)(cid:73)(cid:83)(cid:84)(cid:73)(cid:67)(cid:83) Fully paid ordinary shares Weighted average ordinary shares Earnings per ordinary share (cents) Dividends declared per share (cents) 11,517.4 393.5 63.5 330.0 227.6 1,377.6 12.49 35.5 10,981.7 351.8 61.0 290.8 202.5 1,279.4 12.98 33.5 10,116.1 335.4 51.1 284.3 197.4 1,239.7 16.16 33.2 9,694.8 282.9 57.2 225.7 158.6 1,180.2 8.65 34.1 8,214.4 174.0 40.5 133.5 81.2 1,032.9 (2.40) 42.3 765,644,031 765,178,865 29.74 26.00 764,888,363 764,843,880 26.47 24.00 764,792,593 763,484,392 25.86 21.00 762,405,655 753,116,068 21.06 17.00 747,741,353 593,675,382 16.99 11.50 (cid:47)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:51)(cid:84)(cid:65)(cid:84)(cid:73)(cid:83)(cid:84)(cid:73)(cid:67)(cid:83) Number of employees (full-time equivalents) 5,773 5,358 5,056 5,855 7,033 Community support We will continue to promote and enhance our community spirit. F I V E Y E A R R E V I E W 11 M E T C A S H A N N U A L R E P O R T 2 0 1 0 REVIEW OF OPERATIONS AT A GLANCE › › › Fresh food innovation and product development. 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. › Training and retail operational support for independent retailers. (cid:51)(cid:73)(cid:71)(cid:78)(cid:73)(cid:252)(cid:67)(cid:65)(cid:78)(cid:84)(cid:0)(cid:33)(cid:67)(cid:72)(cid:73)(cid:69)(cid:86)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83) › › › › $1 billion in annualised sales has been achieved across all areas of fresh food. Purchased a national network of 10 fresh produce warehouses and grown customer base to 730 supermarket customers. Sales of meat have grown over 20% year on year for the past two years. Deli sales have continued to grow strongly with a 30% increase for the second year running. AUSTRALIAN LIQUOR MARKETERS (cid:45)(cid:65)(cid:74)(cid:79)(cid:82)(cid:0)(cid:33)(cid:67)(cid:84)(cid:73)(cid:86)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83) › › › › 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. (cid:51)(cid:73)(cid:71)(cid:78)(cid:73)(cid:252)(cid:67)(cid:65)(cid:78)(cid:84)(cid:0)(cid:33)(cid:67)(cid:72)(cid:73)(cid:69)(cid:86)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83) › › EBIT performance was up 6.9%. Overall sales for IGA Liquor, Cellarbrations and The Bottle-O grew strongly during the year. (cid:38)(cid:85)(cid:84)(cid:85)(cid:82)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78) (cid:38)(cid:85)(cid:84)(cid:85)(cid:82)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78) › › › Enhance our retail offer through ranging, display, location and compliance being driven by retail specialists. Grow Fresh Foodservice business nationally. Establish a 'retail ready' meat program on the east coast. › › Continue to grow IBA and Liquor Alliance store numbers. Beer volume growth – one stop supply to the Independent channel. › Win back the 'on-premise' market. IGA DISTRIBUTION (cid:45)(cid:65)(cid:74)(cid:79)(cid:82)(cid:0)(cid:33)(cid:67)(cid:84)(cid:73)(cid:86)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83) IGA FRESH (cid:45)(cid:65)(cid:74)(cid:79)(cid:82)(cid:0)(cid:33)(cid:67)(cid:84)(cid:73)(cid:86)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83) › › 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. (cid:51)(cid:73)(cid:71)(cid:78)(cid:73)(cid:252)(cid:67)(cid:65)(cid:78)(cid:84)(cid:0)(cid:33)(cid:67)(cid:72)(cid:73)(cid:69)(cid:86)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83) › › › Wholesale Sales up 6.8%. EBITA up 9.8% to $346.6 million. Launched ‘Locked Down Low Prices’ program to provide consumer cost savings and to keep our independents competitive. (cid:38)(cid:85)(cid:84)(cid:85)(cid:82)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78) › › › › Ensuring our promotional offer continues to provide value to our customers. Reduce the cost of doing business at wholesale and retail. Grow retail area through new stores and extensions. The evolution of our Local Heroes campaign launched in 2005, into our new ‘How the locals like it’ campaign, launched in late July 2010. S N O I T A R E P O F O W E I V E R 12 0 1 0 2 T R O P E R L A U N N A H S A C T E M CAMPBELLS WHOLESALE (cid:45)(cid:65)(cid:74)(cid:79)(cid:82)(cid:0)(cid:33)(cid:67)(cid:84)(cid:73)(cid:86)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83) (cid:38)(cid:85)(cid:84)(cid:85)(cid:82)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78) › › › › Continuing to provide the total supply chain solution to the modern petrol and convenience channel throughout metropolitan and regional centres. Increase the Lucky 7 branded stores to 400 by the end of FY 2011. Continued growth in confectionery markets. Continuing to expand the foodservice operations of the business. › Win back the 'on-premise' market. › › › › 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: 31 branches servicing over 80,000 small businesses and retailers across all states and territories, stocking in excess of 20,000 product lines including grocery, general merchandise, non-food, confectionery, foodservice and liquor. Four C-Store Distribution (CSD) stockless warehouses supported by specialist confectionery distribution centres. Two FoodLink Foodservice businesses in Western Australia and Queensland providing the leading distribution solution to the foodservice industry. (cid:51)(cid:73)(cid:71)(cid:78)(cid:73)(cid:252)(cid:67)(cid:65)(cid:78)(cid:84)(cid:0)(cid:33)(cid:67)(cid:72)(cid:73)(cid:69)(cid:86)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83) › › Despite difficult trading conditions, sales grew by 1.5% to $1.68 billion. Catering Connection delivered foodservice growth in excess of 8%. MITRE 10 (cid:45)(cid:65)(cid:74)(cid:79)(cid:82)(cid:0)(cid:33)(cid:67)(cid:84)(cid:73)(cid:86)(cid:73)(cid:84)(cid:73)(cid:69)(cid:83) Independent home improvement and hardware wholesaler with an independent retail network of over 430 Mitre 10 and True Value Hardware Stores (cid:51)(cid:73)(cid:71)(cid:78)(cid:73)(cid:252)(cid:67)(cid:65)(cid:78)(cid:84)(cid:0)(cid:33)(cid:67)(cid:72)(cid:73)(cid:69)(cid:86)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:83) Last 12 months management did a great job in: › › › › Stabilising the business. Reducing costs. Getting service levels right. Finding an equity partner. (cid:38)(cid:85)(cid:84)(cid:85)(cid:82)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78) › › › Retain and grow the store network. Modernise the supply chain. Improve merchandise and marketing programs. R E V I E W O F O P E R A T I O N S 13 M E T C A S H A N N U A L R E P O R T 2 0 1 0 100 Major Refurbishments IGA DISTRIBUTION 51 New Stores (cid:41)(cid:39)(cid:33)(cid:0)(cid:36)(cid:73)(cid:83)(cid:84)(cid:82)(cid:73)(cid:66)(cid:85)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:8)(cid:41)(cid:39)(cid:33)(cid:116)(cid:36)(cid:9)(cid:0)(cid:72)(cid:65)(cid:83)(cid:0)(cid:65)(cid:71)(cid:65)(cid:73)(cid:78)(cid:0) (cid:68)(cid:69)(cid:76)(cid:73)(cid:86)(cid:69)(cid:82)(cid:69)(cid:68)(cid:0)(cid:65)(cid:0)(cid:83)(cid:84)(cid:82)(cid:79)(cid:78)(cid:71)(cid:0)(cid:80)(cid:69)(cid:82)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) (cid:67)(cid:79)(cid:78)(cid:84)(cid:73)(cid:78)(cid:85)(cid:69)(cid:68)(cid:0)(cid:84)(cid:79)(cid:0)(cid:82)(cid:69)(cid:68)(cid:85)(cid:67)(cid:69)(cid:0)(cid:73)(cid:84)(cid:83)(cid:0)(cid:67)(cid:79)(cid:83)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:68)(cid:79)(cid:73)(cid:78)(cid:71)(cid:0) (cid:66)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:0)(cid:73)(cid:78)(cid:0)(cid:18)(cid:16)(cid:17)(cid:16)(cid:0)(cid:66)(cid:89)(cid:0)(cid:70)(cid:85)(cid:82)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0)(cid:73)(cid:78)(cid:78)(cid:79)(cid:86)(cid:65)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0) (cid:65)(cid:78)(cid:68)(cid:0)(cid:85)(cid:80)(cid:71)(cid:82)(cid:65)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0)(cid:73)(cid:84)(cid:83)(cid:0)(cid:73)(cid:78)(cid:13)(cid:72)(cid:79)(cid:85)(cid:83)(cid:69)(cid:0)(cid:80)(cid:82)(cid:79)(cid:67)(cid:69)(cid:83)(cid:83)(cid:69)(cid:83)(cid:0) (cid:65)(cid:78)(cid:68)(cid:0)(cid:83)(cid:89)(cid:83)(cid:84)(cid:69)(cid:77)(cid:83)(cid:14)(cid:0)(cid:33)(cid:83)(cid:0)(cid:65)(cid:0)(cid:82)(cid:69)(cid:83)(cid:85)(cid:76)(cid:84)(cid:12)(cid:0)(cid:87)(cid:72)(cid:79)(cid:76)(cid:69)(cid:83)(cid:65)(cid:76)(cid:69)(cid:0) (cid:83)(cid:65)(cid:76)(cid:69)(cid:83)(cid:0)(cid:71)(cid:82)(cid:69)(cid:87)(cid:0)(cid:22)(cid:14)(cid:24)(cid:5)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:37)(cid:34)(cid:41)(cid:52)(cid:33)(cid:0)(cid:66)(cid:89)(cid:0)(cid:25)(cid:14)(cid:24)(cid:5)(cid:0)(cid:0) (cid:84)(cid:79)(cid:0)(cid:4)(cid:19)(cid:20)(cid:22)(cid:14)(cid:22)(cid:0)(cid:77)(cid:73)(cid:76)(cid:76)(cid:73)(cid:79)(cid:78)(cid:14) The strong sales growth was achieved in a competitive market with low inflation and with the benefit of the IGA Fresh business being operational for the full year. During the year 51 new IGA stores were opened and major refurbishments and extensions completed on 100 IGA stores. Growth in numbers and floor space continues to be a major focus to increase the IGA brand and buying power. The introduction of specific training and development programs for our supervisors and warehouse managers added new skill sets that increased their productivity and competence. These actions combined to drive an improved overall performance within our group. During the year a ‘National Distribution Centre’ was established in Victoria, using a ‘mini loader’ that has facilitated an expansion of the range of products available to IGA›D customers and has reduced the cost of warehousing and distributing small volume product items. This will enable retailers to offer a wider range of products to their customers and generate higher returns. (cid:52)(cid:69)(cid:82)(cid:77)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:37)(cid:78)(cid:71)(cid:65)(cid:71)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:112)(cid:0)(cid:48)(cid:82)(cid:79)(cid:74)(cid:69)(cid:67)(cid:84)(cid:0)(cid:44)(cid:73)(cid:79)(cid:78) Project Lion (Leadership, Innovation, Ownership and Negotiation) was established early in 2008 and facilitated offers for optimal communication and goal sharing between IGA›D and the IGA retailers. During 2010, a number of initiatives were provided to IGA retailers as a result of the terms of engagement. One of the key focuses of Project Lion is the new Lion trading terms agreement that enables eligible IGA retailers to earn up to a total of $4 million in additional rebates. The Lion trading terms agreement allows retailers that deliver improved fresh food sales and trade within a highly competitive environment the ability to achieve additional rebates to further strengthen their market position. Solid progress was also made in the areas of benchmarking store operating costs and culture and governance. (cid:33)(cid:68)(cid:68)(cid:73)(cid:84)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:0)(cid:50)(cid:69)(cid:84)(cid:65)(cid:73)(cid:76)(cid:69)(cid:82)(cid:0)(cid:51)(cid:85)(cid:80)(cid:80)(cid:79)(cid:82)(cid:84)(cid:0) (cid:80)(cid:82)(cid:79)(cid:86)(cid:73)(cid:68)(cid:69)(cid:83)(cid:26) › › › › › › › › Additional Local Area Marketing support. Providing defence strategies for independent retailers under threat from the two major chains. ‘Host’ support for product pricing. Utilisation of the Metcash data warehouse to identify improved sales opportunities through product ranging. Funding for the expansion, construction or renovation of stores. Advice on store layouts and enhancement. New store support packages. Introduction of enhanced training and development tools. (cid:44)(cid:79)(cid:67)(cid:75)(cid:69)(cid:68)(cid:0)(cid:36)(cid:79)(cid:87)(cid:78)(cid:0)(cid:44)(cid:79)(cid:87)(cid:0)(cid:48)(cid:82)(cid:73)(cid:67)(cid:69)(cid:83) The Global Financial Crisis (GFC) has created 'the value consumer'. In the next 12 months we will ensure that our value proposition and promotional offers N O I T U B I R T S I D A G I 14 0 1 0 2 T R O P E R L A U N N A H S A C T E M (cid:50) (cid:33) (cid:41) (cid:51) (cid:41) (cid:46) (cid:39) (cid:0) (cid:52) (cid:40) (cid:37)(cid:0) (cid:52) (cid:47) (cid:52) (cid:33) (cid:44) (cid:0) (cid:33) (cid:45) (cid:47) (cid:53) (cid:46) (cid:52)(cid:0) IGA WHOLESALE SALES INCREASED BY (cid:52) (cid:47) (cid:0) (cid:4) 7 , 1 2 9 . 9 6.8% NEW CAMPAIGN LAUNCH 'Locked Down Low Prices' continue to provide clear ‘value’ to our customers. Strategic initiatives relating to value and Fresh will be key drivers of overall sales growth in future. As part of the strategy to provide consumers greater value and to keep our IGA retailers competitive, we launched a new ‘Locked Down Low Prices’ campaign. This is a major promotion/campaign that provides lower retail prices on thousands of products throughout IGA and Supa IGA stores across the country. Consumer and retailer response has been extremely pleasing. (cid:48)(cid:82)(cid:73)(cid:86)(cid:65)(cid:84)(cid:69)(cid:0)(cid:44)(cid:65)(cid:66)(cid:69)(cid:76)(cid:0)(cid:34)(cid:82)(cid:65)(cid:78)(cid:68)(cid:83) The private label offering encompasses two product groups: Black & Gold, a value offer range and IGA Signature, the premium private label range. The Black & Gold range is continually refined to develop categories that meet consumer demands for value. Sales growth for the 2010 financial year was 4%. The IGA Signature range has achieved a sales growth of 7% during 2010. We have made a pledge to our customers that all products in the range offer great quality and great value. Local communities are supported through this product range with 2 cents from every product sold donated to the local IGA Community Chest as well as sourcing Australian ingredients where available. (cid:41)(cid:39)(cid:33)(cid:116)(cid:36)(cid:0)(cid:35)(cid:79)(cid:82)(cid:80)(cid:79)(cid:82)(cid:65)(cid:84)(cid:69) In order to provide faster decision making at a state level and promptly address local market needs, the IGA›D corporate office has been restructured with greater accountability transferred to the State IGA›D offices. Corporate will continue to manage major National strategic issues. Further, it enables improved ‘speed to market’ which provides an additional competitive advantage. This new approach also provides our customers with an improved offer overall in terms of market dynamics, by allowing the State office to determine the marketing and promotional needs of their businesses and where resources should be invested. We continue to promote and enhance our community spirit and in July 2010 launched a new Local Heroes campaign that reiterates the community support and vision we have in the market place. Silvestro Morabito CEO IGA Distribution EBITA growth EBITA grew by 9.8% raising $315.5 million to $346.6 million 9.8% EBITA ($m) 346.6 . 5 5 1 3 . 1 5 7 2 . 3 7 4 2 . 8 5 7 1 06 07 08 09 10 6.8% Total Sales ($m) 7,129.9 8 . 1 8 6 , 6 0 . 6 6 0 , 6 2 . 4 2 8 , 5 3 . 9 5 6 , 4 06 07 08 09 10 I G A D I S T R I B U T I O N 15 M E T C A S H A N N U A L R E P O R T 2 0 1 0 730 Supermarket customers IGA DISTRIBUTION CONTINUED... (cid:41)(cid:39)(cid:33)(cid:0)(cid:38)(cid:82)(cid:69)(cid:83)(cid:72)(cid:0) In its second year of operation, IGA Fresh has actively consolidated the fresh produce network it established in year one and expanded its customer base. Metcash has invested significant time and resources in developing the ability to service retailers in this crucial area of its business. $1 billion in annual sales has been achieved across all areas of fresh food. The IGA Fresh team now includes retail specialists located nationally to assist retailers grow their fresh food business. The buying, merchandising and maintenance of the fresh area within a supermarket drives shoppers' behaviour and the success of the rest of the store. The IGA retail specialists have proven experience in growing our customers' sales and gross profit by utilising the most up to date retailing techniques. (cid:48)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:69) Having rapidly established a national network of 10 fresh produce warehouses, a key goal was to ensure customer retention during the conversion from smaller family run operations to an integrated corporate group. In addition to retaining existing customers, the IGA Fresh team has grown the customer base to 730 supermarket customers. The Produce team continues to develop a private label fresh produce range with 271 products now available. The team has also commenced a project to further enhance the retail offer in range, display and location for a number of stores. Initial results are positive. Significant investment has been made in warehousing and systems with the installation of a uniform produce system in seven warehouses, with a further three to be completed in the coming months. This will provide more transparency through the business and assist in sourcing a greater proportion of purchases directly from growers rather than from local markets. New warehouses are being built to house the growing produce businesses. (cid:45)(cid:69)(cid:65)(cid:84) Sales of meat have grown over 20% per annum for the past two years as retailers are provided with high quality products at a competitive price together with sound advice on retailing initiatives. The two WA meat processing sites continue to offer a complete meat offer to WA retailers. These two operations will be consolidated in 2011. The private label meat range continues to grow with 118 products distributed nationally. Opportunities to establish a ‘retail ready’ meat program on the east coast are being considered. (cid:36)(cid:69)(cid:76)(cid:73)(cid:67)(cid:65)(cid:84)(cid:69)(cid:83)(cid:83)(cid:69)(cid:78) Sales have continued to grow strongly with a 30% increase for the second year running. An increasing number of products are now being distributed through our national warehouses. Pricing continues to be a key driver with a number of strong price and product promotions in place to drive sales in 2011. (cid:48)(cid:79)(cid:85)(cid:76)(cid:84)(cid:82)(cid:89) IGA Fresh’s agreement with Lenard's to offer a co-branded outlet in IGA retailers’ stores has attracted a positive response from customers. Sales growth is expected to continue as more retailers take up this offer. Together with the ‘Prize Poultry’ concept, IGA now has a branded poultry offer in over 105 IGA stores. (cid:41)(cid:78)(cid:0)(cid:73)(cid:84)(cid:83)(cid:0)(cid:83)(cid:69)(cid:67)(cid:79)(cid:78)(cid:68)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82)(cid:0)(cid:79)(cid:70)(cid:0)(cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:12)(cid:0)(cid:41)(cid:39)(cid:33)(cid:0)(cid:38)(cid:82)(cid:69)(cid:83)(cid:72)(cid:0)(cid:0) (cid:72)(cid:65)(cid:83)(cid:0)(cid:65)(cid:67)(cid:84)(cid:73)(cid:86)(cid:69)(cid:76)(cid:89)(cid:0)(cid:67)(cid:79)(cid:78)(cid:83)(cid:79)(cid:76)(cid:73)(cid:68)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:70)(cid:82)(cid:69)(cid:83)(cid:72)(cid:0)(cid:80)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:69)(cid:0) (cid:78)(cid:69)(cid:84)(cid:87)(cid:79)(cid:82)(cid:75)(cid:0)(cid:73)(cid:84)(cid:0)(cid:69)(cid:83)(cid:84)(cid:65)(cid:66)(cid:76)(cid:73)(cid:83)(cid:72)(cid:69)(cid:68)(cid:0)(cid:73)(cid:78)(cid:0)(cid:89)(cid:69)(cid:65)(cid:82)(cid:0)(cid:79)(cid:78)(cid:69)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) (cid:69)(cid:88)(cid:80)(cid:65)(cid:78)(cid:68)(cid:69)(cid:68)(cid:0)(cid:73)(cid:84)(cid:83)(cid:0)(cid:67)(cid:85)(cid:83)(cid:84)(cid:79)(cid:77)(cid:69)(cid:82)(cid:0)(cid:66)(cid:65)(cid:83)(cid:69)(cid:14) N O I T U B I R T S I D A G I 16 0 1 0 2 T R O P E R L A U N N A H S A C T E M ESTABLISHED A NATIONAL NETWORK OF 10 FRESH PRODUCE WAREHOUSES (cid:33) (cid:46) (cid:36) (cid:0) (cid:39) (cid:50) (cid:47) (cid:55) (cid:46)(cid:0) (cid:35) (cid:53) (cid:51) (cid:52) (cid:47) (cid:45) (cid:37) (cid:50) (cid:0) (cid:34) (cid:33) (cid:51) (cid:37) (cid:0) (cid:52) (cid:47)(cid:0) 7 3 0 (cid:0) (cid:51) (cid:53) (cid:48) (cid:37) (cid:50) (cid:45) (cid:33) (cid:50) (cid:43) (cid:37) (cid:52)(cid:0) (cid:35) (cid:53) (cid:51) (cid:52) (cid:47) (cid:45) (cid:37) (cid:50) (cid:51) (cid:34)(cid:65)(cid:75)(cid:69)(cid:82)(cid:89) IGA stores continue to develop their bakery strategies with the support of IGA Fresh’s retail specialists. More customers have been enticed by the ‘Baker’s Oven’ brand and its 338 products, with the ‘Quick Bake’ (in-store baking) strategy also providing retailers with an opportunity to expand their offer. (cid:51)(cid:85)(cid:77)(cid:77)(cid:65)(cid:82)(cid:89) In 2010 IGA Fresh achieved its key goals – significant growth in all categories with the continued integration of the national produce network. 2011 promises to be equally exciting, with ongoing consolidation of systems, investment in new facilities and a range of initiatives for retailers. Overall, IGA Fresh in conjunction with IGA›D Business Managers provide a number of services to grow and develop the Independent retailer. These include: › › › › › › Ranging of Departments. Operational procedures across all areas of the supermarket. Layouts, Core Ranging by store. Reporting and analysis of store GP’s. Quality Assurance support (HACCP) and ongoing training. Communication of State protocols in relation to pricing, scanning and other legislative procedures. › Providing retail and industry market knowledge. A dedicated team of retail specialists assist retailers nationally in delivering the best possible outcome for their business with a strategic focus on driving profitable retail sales. IGA FRESH ACHIEVED MANY KEY MILESTONES DELICATESSEN SALES UP 30% Harry Rumpler CEO IGA Fresh I G A D I S T R I B U T I O N 17 M E T C A S H A N N U A L R E P O R T 2 0 1 0 AUSTRALIAN LIQUOR MARKETERS The 2010 year was a difficult trading period for the Australian liquor industry. Suppliers and retailers, who had previously benefited from the Federal Government’s stimulus payments, experienced a very different market place this year. Up until the key Christmas trading period the market had been steady but from the end of December until the end of April trade was soft. Most, if not all, suppliers and retailers experienced these difficult trading conditions and as a result, Australian Liquor Marketers' sales finished flat on the prior year. Despite this, EBITA was up 6.9% as a result of a consistent and strong focus on cost reduction. ALM was able to post a strong profit performance on the back of our continuous improvement process to maximise the asset utilisation and cost control within the distribution network. The introduction of a small warehouse management software solution in Hobart and radio frequency receiving in all major warehouses contributed to the overall reduction in the cost of doing business (CODB). In addition, the ongoing program to reduce excess stock resulted in lower holding costs but at the same time improved the overall customer service levels within the network. Additionally, the rationalisation of the New Zealand network was successful in improving service and reducing overall CODB in the Tasman business. Independent Brands Australia (IBA) continued to lead the way for the independent banner groups in Australia. Management has worked hard to lift the retail standards of the entire network and while some stores were unable to retain their banner membership, their volume was not lost to the ALM network. Overall sales for ‘IGA Liquor’, ‘Cellarbrations’ and ‘The Bottle-O’ grew strongly during the 2010 year and these stores will be well placed to gain from any uplift in the market. ALM has a long history of supporting independent liquor retailers during difficult times and is a strong supporter of independent liquor store and hotel owners. S R E T E K R A M R O U Q I L N A I L A R T S U A 18 0 1 0 2 T R O P E R L A U N N A H S A C T E M EBITA INCREASED R E D U C T I O N6.9%BY (cid:33) (cid:51) (cid:0) (cid:33) (cid:0) (cid:50) (cid:37) (cid:51) (cid:53) (cid:44) (cid:52) (cid:0) (cid:47) (cid:38) (cid:0) (cid:33) (cid:0) (cid:35) (cid:47) (cid:46) (cid:51) (cid:41) (cid:51) (cid:52) (cid:37) (cid:46) (cid:52)(cid:0) (cid:33) (cid:46) (cid:36) (cid:0) (cid:51) (cid:52) (cid:50) (cid:47) (cid:46) (cid:39) (cid:0) F O C U S O N C O S T 6.9% EBITA ($m) 36.1 8 . 3 3 2 . 1 3 7 . 0 3 4 . 8 2 06 07 08 09 10 0.04% Total Sales ($m) 2,640.6 . 4 9 3 6 2 , . 3 9 9 4 2 , . 2 3 5 4 2 , . 7 7 0 4 2 , The services that ALM provides retailers with include: › › › › › Advice and support regarding store layouts. Support for store refits. Support in Information Technology and the latest web portal technology for stock ordering and control. Financial support to member organisations. Buying power for consumables, from motor vehicles to electricity through the ‘Metcash Advantage Program’. ALM has strong and experienced management and this, combined with a dedicated work force, continues to support our retailers and suppliers in providing them with world class, cost effective supply chain solutions. ALM employees and IBA retailers were again proud to continue their national support of ‘Canteen’ and our retailers continue to support their local communities as only independent retailers can. Fergus Collins CEO Australian Liquor Marketers 06 07 08 09 10 OVERALL SALES FOR IGA LIQUOR, CELLARBRATIONS & BOTTLE-O GREW STRONGLY (cid:36) (cid:53) (cid:50) (cid:41) (cid:46) (cid:39)(cid:0)(cid:0) 2 0 1 0 A U S T R A L I A N L I Q U O R M A R K E T E R S 19 M E T C A S H A N N U A L R E P O R T 2 0 1 0 In excess of 20,000 Product Lines 31 Branches CAMPBELLSWHOLESALE Campbells sales growth increased by 1.5% to $1.68 billion, however, EBIT declined by 12.5 %. This was largely due to the impact of low inflation affecting gross margins and the consequent impact of higher fixed costs. The last 12 months' trading has been challenging for both the convenience and hospitality markets. Consumers have become more receptive to value products and this has been evidenced by less impulse spending and a greater tendency to dine at home. Campbells Wholesale had four operating divisions, Campbells Wholesale Distribution (CWD), C-Store Distribution (CSD), Foodlink (Foodservice) and Campbells Cash & Carry (CCC). Each division was tailored to meet the needs of their customers in the route, convenience and hospitality market segments. Whilst the first three divisions remain strong, for a number of years the traditional Cash and Carry wholesale market has been in decline. The Company announced in March 2010 that it would rationalise the network of Campbells branches by closing 8 branches. This initiative is expected to substantially reduce costs whilst retaining a large number of customers by investing in the infrastructure to enable flexible, frequent deliveries to be made by the remaining branches to small business and convenience/hospitality retailers. As a result the CCC and CWD divisions will merge to form Campbells Wholesale division, with all branches in the network servicing both customer groups. This combined offer will provide a unique service to convenience store operators who require flexibility. The cost of the restructure is estimated to be $10.8 million after tax with annual EBIT benefits of approximately $4 million to $5 million expected to flow from these actions. A restructure provision of $15.4 million has been created and this charge has been treated as a Non-Recurring Item (NRI) in the Group’s Income Statement for the year ended 30 April 2010. The Campbells Wholesale business continues to evolve with retail convenience requiring more of a full delivery service rather than an exclusive cash and carry offer. The provision of in excess of 100 business development representatives, strong community based operations, walk-in trade, full service delivery, online ordering and with access to over 20,000 product lines ensures that customers receive the support they need to grow their businesses. This division services 80,000 small businesses and retailers in all states and territories through one order, one invoice and one delivery of all of their requirements. C-Store Distribution (CSD) consisting of 4 stockless warehouses, continues to grow. While independently operated ‘corner stores’ continue to decline, the organised sector remains an attractive target for CSD. The organised convenience sector, led by 7 Eleven, derives major benefit from using the efficient supply chain CSD provides, which is unmatched in the industry. This division continues to reduce supply chain costs through investment in logistics technology. In September 2010 CSD will operate from IGA›D (Laverton, Victoria) and utilise the new ‘mini-loader’ which is a robotic crane picking system. This initiative will generate further efficiency gains. The CSD division provides its customers with a ‘just in time’ delivery operation which uses state-of-the-art picking technology. It offers range control/hosting, electronic invoicing, planograms, supplier promotional programs and delivery in full and on time. The low cost operation is efficient and ensures competitive pricing. E L A S E L O H W S L L E B P M A C 20 0 1 0 2 T R O P E R L A U N N A H S A C T E M 31 CAMPBELLS WHOLESALE SERVICING BRANCHES THOUSAND (cid:51) (cid:45) (cid:33) (cid:44) (cid:44) (cid:0) (cid:34) (cid:53) (cid:51) (cid:41) (cid:46) (cid:37) (cid:51) (cid:51) (cid:37) (cid:51) (cid:0) (cid:33) (cid:46) (cid:36)(cid:0) (cid:50) (cid:37) (cid:52) (cid:33) (cid:41) (cid:44) (cid:37) (cid:50) (cid:51) (cid:0) (cid:41) (cid:46) (cid:0) (cid:33) (cid:44) (cid:44) (cid:0) (cid:47) (cid:38)(cid:0) A U S T R A L I A ' S S T A T E S(cid:0) (cid:0) (cid:33) (cid:46) (cid:36) (cid:0) (cid:52) (cid:37) (cid:50) (cid:50) (cid:41) (cid:52) (cid:47) (cid:50) (cid:41) (cid:37) (cid:51) T E S 80 CATERING CONNECTION GROWTH UP 8% Campbells specialist foodservice division, Foodlink, experienced a contracting sales trend as consumer dining shifted from restaurants to home dining and a number of mining operations closed in WA. As the Campbells Wholesale business services a large number of foodservice vendors (takeaways, hotels, clubs etc) the hospitality industry remains an attractive target for both divisions. Foodlink operate in two states (WA and Qld) and the division will expand nationally as acquisition opportunities arise. Lucky 7, the independent convenience store banner has 300 branded sites across Australia generating over $300 million in retail sales annually. The Lucky 7 banner provides smaller independents with a unique formatted offer including store refurbishments, signage, retail assistance, planograms and impulse promotions. Members joining this group are provided with the tools required to compete effectively in the convenience market. Significant investment has been made in the brand and membership is expected to increase to over 400 in the next year. Campbells Wholesale will continue to refine its services and operations to produce a strong result in the new financial year. ‘Catering Connection’ delivered an 8% foodservice sales growth through Campbells Wholesale business. The Catering Connection concept provides a ‘shop within a shop’ at selected Campbells outlets. Essentially, ‘Catering Connection’ provides a broad range of foodservice products, frozen and chilled products, fresh meat and catering equipment to the free trade and hospitality markets and, provides full service delivery to its customer base. Peter Dubbelman CEO Campbells Wholesale 1.5% Total Sales ($m) 1,685.3 4 . 0 6 6 , 1 8 . 0 5 5 , 1 4 . 7 1 4 , 1 4 7. 4 1,1 06 06 07 08 09 10 EBITA ($m) 28.8 . 0 3 3 . 6 0 3 . 9 8 2 . 2 1 2 06 07 08 09 10 Sales Growth Lucky 7 sales increased 27% on the previous year C A M P B E L L S W H O L E S A L E 21 M E T C A S H A N N U A L R E P O R T 2 0 1 0 440 Branded Stores MITRE 10 (cid:45)(cid:73)(cid:84)(cid:82)(cid:69)(cid:0)(cid:17)(cid:16) Mitre 10 joins the Metcash Group with a fifty year history of supporting independent home improvement and hardware retailers, who are an integral part of local communities, right around the nation. April 2010 was Mitre 10’s first trading period to be included in Metcash’s full year results. The Metcash share of Mitre 10 earnings for this period was $1.5 million. The effect of tough economic conditions, reduced home building and interest rate increases have led to an unsteady market resulting in lower sales compared with last year. Trading conditions continue to be mixed across all states. Despite the mixed trading conditions of the last 12 months, the business continued to manage working capital efficiently whilst maintaining a customer service level of 95% deliveries in full, on time (DIFOT). (cid:48)(cid:82)(cid:69)(cid:80)(cid:65)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:65)(cid:0)(cid:48)(cid:65)(cid:82)(cid:84)(cid:78)(cid:69)(cid:82)(cid:83)(cid:72)(cid:73)(cid:80) Prior to Metcash acquiring a 50.1% share in Mitre 10’s holding company, Mittenmet Limited, a lot of work was undertaken to improve working capital management. Over the last 12 months Mitre 10’s management priorities were to stabilise the business, take out costs, get customer service levels right and continue to operate a lean business in a challenging economic environment. This ‘business fitness’ approach resulted in the 0 1 E R T I M 22 0 1 0 2 T R O P E R L A U N N A H S A C T E M company achieving significant financial improvements and its best ever EBIT result from its core business, wholesale distribution operations. (cid:45)(cid:73)(cid:84)(cid:82)(cid:69)(cid:0)(cid:17)(cid:16)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:45)(cid:69)(cid:84)(cid:67)(cid:65)(cid:83)(cid:72) Metcash, along with its tried and tested expertise in merchandising, brand management and logistics, has partnered with Mitre 10 to operate as the only true independent national home improvement and hardware chain in Australia. It was clear to both parties that Metcash is the natural owner of Mitre 10. The Metcash involvement has bolstered the Mitre 10 balance sheet, ensures Mitre 10 Members retain their independence as retailers, and enables Mitre 10 to respond swiftly to market pressures in an increasingly competitive landscape. (cid:46)(cid:69)(cid:87)(cid:0)(cid:44)(cid:69)(cid:65)(cid:68)(cid:69)(cid:82)(cid:83)(cid:72)(cid:73)(cid:80) In order to revitalise the Mitre 10 management team, Metcash has seconded three experienced executives – Mark Laidlaw as CEO, Robin Johnston, General Manager Commercial and Carl Salem, General Manager Merchandise & Marketing. These executives, alongside experienced Mitre 10 leaders, will create a strong management team. (cid:41)(cid:78)(cid:73)(cid:84)(cid:73)(cid:65)(cid:76)(cid:0)(cid:38)(cid:79)(cid:67)(cid:85)(cid:83) An operational review of the Mitre 10 business was conducted in April/May 2010 and the resultant recommendations are being merged into Mitre 10’s business plan. Productivity improvements will be made in areas such as supply chain, supplier relationships and brand building and some early results are expected. (cid:37)(cid:77)(cid:66)(cid:65)(cid:82)(cid:75)(cid:73)(cid:78)(cid:71)(cid:0)(cid:79)(cid:78)(cid:0)(cid:65)(cid:0)(cid:46)(cid:69)(cid:87)(cid:0)(cid:0) (cid:39)(cid:82)(cid:79)(cid:87)(cid:84)(cid:72)(cid:0)(cid:48)(cid:72)(cid:65)(cid:83)(cid:69)(cid:0) The challenge for Mitre 10 now is to grow the business at a time where the retail economy is unsteady, but consumers will always support well stocked local independent retailers managed by knowledgeable and helpful owners and staff. Mitre 10 is now in a position to grow the business with Metcash support. Plans will be implemented to: › protect the existing store network and support Mitre 10 Members by developing a strong merchandise program to drive sales. › Drive sales growth by recruiting new Members and opening new stores. A guiding business principle, in line with the Metcash philosophy, is that Mitre 10 will not compete with its customers by operating company owned stores. MITRE 10 JOINS THE METCASH GROUP WITH A 50 YEAR HISTORY (cid:47) (cid:38) (cid:0) S U P P O R T I N G(cid:0) (cid:41) (cid:46) (cid:36) (cid:37) (cid:48) (cid:37) (cid:46) (cid:36) (cid:37) (cid:46) (cid:52) (cid:0) (cid:40) (cid:47) (cid:45) (cid:37)(cid:0) (cid:41) (cid:45) (cid:48) (cid:50) (cid:47) (cid:54) (cid:37) (cid:45) (cid:37) (cid:46) (cid:52) (cid:0) (cid:33) (cid:46) (cid:36)(cid:0) (cid:40) (cid:33) (cid:50) (cid:36) (cid:55)(cid:33) (cid:50) (cid:37) (cid:0) (cid:50) (cid:37) (cid:52) (cid:33) (cid:41) (cid:44) (cid:37) (cid:50) (cid:51) Future growth for Mitre 10 focus on improvements in the supply chain, developing a strong merchandise and marketing model NEW EXECUTIVE TEAM THE NEW EXECUTIVES ALONGSIDE EXPERIENCED MITRE 10 LEADERS WILL CREATE A STRONG MANAGEMENT TEAM warehouses will be implemented at Mitre 10 over the next 18 months. This is expected to produce a 20% to 30% increase in warehouse productivity. (cid:45)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:45)(cid:69)(cid:82)(cid:67)(cid:72)(cid:65)(cid:78)(cid:68)(cid:73)(cid:83)(cid:73)(cid:78)(cid:71) Mitre 10 continues to be the leading independent hardware brand in Australia. With brand recognition above 26% and rising, Mitre 10 can look forward to the benefits of synergies leveraged from Metcash’s buying power – that means more brand exposure – that's Mighty Helpful for the membership! Mitre 10 will improve its targeted ‘local’ market positioning and niche marketing. The New Year will see significant new ranging throughout the Mitre 10 distribution network, delivering lower cost of goods with the advantage of one primary delivery. The Private Label strategy will be a priority program, driving consumer preference for Mitre 10 whilst increasing retail margins in this very competitive market. (cid:48)(cid:82)(cid:79)(cid:77)(cid:79)(cid:84)(cid:73)(cid:79)(cid:78) Mitre 10 is set to deliver the critical competitive advantage required in promotion to consumer and trade. Stronger promotions, aggressive prices and a new range of ‘go to market’ initiatives will excite Members and consumers alike. The future direction of Mitre 10 is expected to focus on improvements in the supply chain, developing a strong merchandise and marketing model and growth strategies. Mark Laidlaw CEO Mitre 10 M I T R E 1 0 23 M E T C A S H A N N U A L R E P O R T 2 0 1 0 (cid:52)(cid:72)(cid:69)(cid:0)(cid:45)(cid:73)(cid:84)(cid:82)(cid:69)(cid:0)(cid:17)(cid:16)(cid:0)(cid:45)(cid:69)(cid:77)(cid:66)(cid:69)(cid:82)(cid:0)(cid:46)(cid:69)(cid:84)(cid:87)(cid:79)(cid:82)(cid:75) The Mitre 10 network currently consists of 440 branded stores with 430 non branded stores also being serviced. (cid:41)(cid:78)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:52)(cid:69)(cid:67)(cid:72)(cid:78)(cid:79)(cid:76)(cid:79)(cid:71)(cid:89) A new three-year IT strategy is being implemented to guide IT improvements and investment. Member needs, industry trends, the Mitre 10 three-year Business Plan and the current state of Mitre 10’s ageing applications are being addressed. (cid:51)(cid:85)(cid:80)(cid:80)(cid:76)(cid:89)(cid:0)(cid:35)(cid:72)(cid:65)(cid:73)(cid:78) Three key Supply Chain and Logistics areas are being focused on to provide a stable and consistent level of service – safety, accuracy and service. This focus has resulted in the best level of DIFOT in the last five years and the lowest number of injuries or incidents in our distribution centres (DC), together with reduced costs and increased capability of the DC in Derrimut, Victoria. In terms of safety and industrial relations: › › › all workplace agreements were completed on time with no issues. no lost time incurred due to industrial relations issues over the last 12 months. safety performance has incrementally improved in the last 12 months resulting in reduced long term injury cases. The warehouse management technology and systems used by Metcash in its CORPORATE SOCIAL RESPONSIBILITY (cid:35)(cid:79)(cid:82)(cid:80)(cid:79)(cid:82)(cid:65)(cid:84)(cid:69)(cid:0)(cid:51)(cid:79)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:50)(cid:69)(cid:83)(cid:80)(cid:79)(cid:78)(cid:83)(cid:73)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:89) 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 Health, Safety, Environmental and Community (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. WE FOCUS ON OUR PEOPLE OUR CUSTOMERS OUR COMMUNITY & OUR ENVIRONMENT Sustainability is now a core area within our business strategy. We continue to place greater importance on the value of environment, social and governance principles, and to improve and manage our corporate responsibilities as part of our daily business operations as part of a triple bottom line approach. (cid:47)(cid:85)(cid:82)(cid:0)(cid:48)(cid:69)(cid:79)(cid:80)(cid:76)(cid:69) Talent Management Attracting, developing and retaining our staff continues to be a key business priority. In 2009 the company invested in a new on-line recruitment system which is delivering lower recruitment costs and an improved level of candidate quality. The Metcash Talent Management Framework has been strengthened to enhance business performance and ensure a leadership pipeline. This has been done by the introduction of new leadership competencies, a revised performance management system and new succession planning processes that identify and retain top talent. (cid:44)(cid:69)(cid:65)(cid:68)(cid:69)(cid:82)(cid:83)(cid:72)(cid:73)(cid:80)(cid:0)(cid:36)(cid:69)(cid:86)(cid:69)(cid:76)(cid:79)(cid:80)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0) There has been a focus on building leadership capability and strength at all levels, increasing the return to employees and the company from learning and development investment and improving employees' access to learning opportunities. The Metcash Leadership Academy was launched in early 2010 with structured leadership programs provided at each leadership level. Programs include the ‘Diploma of Management’,’ LIFT Warehouse Leadership Program’, and three ‘Senior Manager Programs’ focusing on leading operations, projects and people. The company also provides a suite of core/cross level programs, on-line resources and e-learning solutions. Employees are also supported in completing accredited vocational and tertiary education through the Metcash Employee Vocational Education Sponsorship program, or MEVES. (cid:37)(cid:77)(cid:80)(cid:76)(cid:79)(cid:89)(cid:69)(cid:69)(cid:0)(cid:37)(cid:78)(cid:71)(cid:65)(cid:71)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84) Employee health and well-being are supported through the Metcash Pro-fit Program offering annual flu vaccinations and health checks, employee counselling services, Camp Metcash, and flexible working arrangements including the ability to purchase additional annual leave days and access to well-being days. The company 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. Workplace diversity is a key priority and the establishment of a Diversity Committee and strategy will drive this initiative over the coming years. (cid:55)(cid:79)(cid:82)(cid:75)(cid:80)(cid:76)(cid:65)(cid:67)(cid:69)(cid:0)(cid:50)(cid:69)(cid:76)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83) More than two thirds of the Metcash Trading Limited’s workforce have their wage rates and employment conditions determined by Enterprise Agreements or Modern Awards. There are currently 38 Enterprise Agreements and three principal Modern Awards that apply to our weekly-paid employees, covering a range of warehousing, clerical and transport functions. Several Enterprise Agreements were renewed during the financial year, all of which have met the budgeted levels or parameters set by the business. Y T I L I B I S N O P S E R L A I C O S E T A R O P R O C 24 0 1 0 2 T R O P E R L A U N N A H S A C T E M IGA LEADS AUSTRALIAN GROCERY RETAILING FOR QUALITY, EVERYDAY LOW PRICES & COMMUNITY SUPPORT With the launch of IGA Signature we made a significant pledge to our members and people in the community. IGA Signature is our premium brand, offering quality benchmarked against market leaders and innovation throughout the world. This taps into the growth of Private Label acceptance by consumers and the range is exclusive to IGA branded stores, so adds a strong 'reason why' consumers will come back to IGA. Two cents from every IGA Signature product sold is contributed to the local community via the Community Chest program. This can be influenced by shoppers through their stores so is a powerful driver to purchase IGA Signature and reinforces the Local Hero message. The annual payroll amount for weekly- paid employees across Metcash Trading Limited is $190,000,000.00. Significantly, Metcash has not lost a day from industrial action for the re-negotiation of an Enterprise Agreement in the last 12 years. Enterprise Agreements reached by the business require a balance between increasing employee benefits, whilst at the same time, having an emphasis on reducing our cost of doing business and improving our service to our customers. (cid:47)(cid:67)(cid:67)(cid:85)(cid:80)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:65)(cid:76)(cid:0)(cid:40)(cid:69)(cid:65)(cid:76)(cid:84)(cid:72)(cid:0)(cid:6)(cid:0)(cid:51)(cid:65)(cid:70)(cid:69)(cid:84)(cid:89)(cid:0)(cid:8)(cid:47)(cid:40)(cid:6)(cid:51)(cid:9) The Vision In 2010 Metcash focused on improving Safety levels through the implementation of the Mission Zero five-year strategic plan. The central approach of ‘Mission Zero’ is to embed a culture that is intolerant of any injury and incident through a commitment to personal accountability at every level of the organisation. Building on this foundation with streamlined systems and processes, we aim to achieve world-class safety performance. Some of the key focus areas in 2009-10 have included: › › › Company-wide review of all safety procedures to ensure relevance and effectiveness. Simplification of internal safety reporting processes. Development of an early intervention approach to injury management. › Rationalisation and realignment of insurance arrangements to ensure effective future management of workers compensation. › A targeted approach to managing key safety risk areas. The OH&S/Injury Management Team in 2009-10 developed strategic projects aimed at managing the key Safety Risk areas: › › › › I-CARE – continued implementation and embedding the national strategic injury management model; MESSI – mobile equipment management; Manual handling assessment and review; Fit For Work program fully implemented across the business incorporating drug and alcohol testing in pre-employment medicals, random testing, cause testing and self testing. The year ahead will see a continued focus on our key safety risks and safety systems. This will include further development of initiatives for management of manual handling and mobile equipment aimed at driving down incidents and injuries in these areas. In addition, improved safety data systems will be developed to assist in effective targeting for proactive safety management, providing further improvements in safety performance. (cid:51)(cid:65)(cid:70)(cid:69)(cid:84)(cid:89)(cid:0)(cid:48)(cid:69)(cid:82)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:78)(cid:67)(cid:69) The results for the 2009-10 period were very positive with significant reductions in the Lost Time Injury Frequency Rate (LTIFR), Lost Time Injuries (LTI’s), lost hours, claims costs and durations. There was an increase in workers compensation claims as a result of an increased focus on reporting incidents and injuries. (cid:45)(cid:69)(cid:84)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:38)(cid:73)(cid:86)(cid:69)(cid:13)(cid:57)(cid:69)(cid:65)(cid:82)(cid:0)(cid:47)(cid:40)(cid:51)(cid:0)(cid:44)(cid:65)(cid:71)(cid:0)(cid:41)(cid:78)(cid:68)(cid:73)(cid:67)(cid:65)(cid:84)(cid:79)(cid:82)(cid:83) (cid:40)(cid:85)(cid:78)(cid:68)(cid:82)(cid:69)(cid:68)(cid:83) 3 2 1 0 LTI LTIFR 2005–06 2006–07 2007–08 2008–09 2009–10 LOST HOURS -47% CLAIMS COST -33% CLAIM DURATION -54% CLAIMS +14% C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y 25 M E T C A S H A N N U A L R E P O R T 2 0 1 0 CORPORATE SOCIAL RESPONSIBILITY CONTINUED... SUSTAINABILITY IS A CORE AREA WITHIN OUR BUSINESS STRATEGY (cid:113) (cid:55) (cid:37) (cid:0) (cid:35) (cid:47) (cid:46) (cid:52) (cid:41) (cid:46) (cid:53) (cid:37) (cid:0) (cid:52) (cid:47) (cid:0) (cid:48) (cid:44) (cid:33) (cid:35) (cid:37)(cid:0) (cid:39) (cid:50) (cid:37) (cid:33) (cid:52) (cid:37) (cid:50) (cid:0) (cid:41) (cid:45) (cid:48) (cid:47) (cid:50) (cid:52) (cid:33) (cid:46) (cid:35) (cid:37)(cid:0) (cid:47) (cid:46) (cid:0) (cid:52) (cid:40) (cid:37) (cid:0) (cid:54) (cid:33) (cid:44) (cid:53) (cid:37) (cid:0) (cid:47) (cid:38)(cid:0) E N V I R O N M E N T , S O C I A L & G O V E R N A N C E P R I N C I P L E S (cid:14) (cid:47)(cid:85)(cid:82)(cid:0)(cid:48)(cid:82)(cid:79)(cid:67)(cid:69)(cid:83)(cid:83)(cid:69)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:48)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:83) Product Safety/Public Health The Company continues to implement strategies to ensure its business units comply with food safety and food labeling legislation whilst 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 certification schemes using safe and ethical methods. The Company's 'corporate brand' food and consumer products are produced under product specification management and trade measurement monitoring systems which include regular physical, chemical and microbiological batch testing to ensure compliance and consumer safety. (cid:38)(cid:79)(cid:79)(cid:68)(cid:0)(cid:51)(cid:65)(cid:70)(cid:69)(cid:84)(cid:89)(cid:0)(cid:51)(cid:84)(cid:65)(cid:78)(cid:68)(cid:65)(cid:82)(cid:68)(cid:83)(cid:0) 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 certified to HACCP (Codex Alimentarius) by third parties. The internal and external third party audits conducted during the past year confirmed that all Metcash sites are operating at legislated food safety standards and have no outstanding major non-conformances. Y T I L I B I S N O P S E R L A I C O S E T A R O P R O C 26 0 1 0 2 T R O P E R L A U N N A H S A C T E M (cid:35)(cid:82)(cid:73)(cid:84)(cid:73)(cid:67)(cid:65)(cid:76)(cid:0)(cid:41)(cid:78)(cid:70)(cid:82)(cid:65)(cid:83)(cid:84)(cid:82)(cid:85)(cid:67)(cid:84)(cid:85)(cid:82)(cid:69)(cid:0)(cid:48)(cid:76)(cid:65)(cid:78)(cid:78)(cid:73)(cid:78)(cid:71)(cid:0) 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 floods, cyclones and bushfire risks. Pandemic contingency plans have been developed over the last four years by the Retail Action Working Group with the Food and Grocery Industry. Last year’s pandemic event has been reviewed to further improve response and recovery plans for a severe pandemic event. (cid:34)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:0)(cid:35)(cid:79)(cid:78)(cid:84)(cid:73)(cid:78)(cid:85)(cid:73)(cid:84)(cid:89)(cid:0)(cid:45)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84) A robust Business Continuity program is a characteristic of good corporate governance. Metcash continues to develop and review existing site management plans along with alerts and response/recovery procedures to improve our preparedness to effectively recover in the event of an incident, disaster or community issue (e.g. Pandemic). (cid:47)(cid:85)(cid:82)(cid:0)(cid:51)(cid:85)(cid:83)(cid:84)(cid:65)(cid:73)(cid:78)(cid:65)(cid:66)(cid:73)(cid:76)(cid:73)(cid:84)(cid:89)(cid:0)(cid:51)(cid:84)(cid:82)(cid:65)(cid:84)(cid:69)(cid:71)(cid:89)(cid:0)(cid:0) (cid:65)(cid:78)(cid:68)(cid:0)(cid:48)(cid:82)(cid:79)(cid:74)(cid:69)(cid:67)(cid:84)(cid:83) We have formally established key performance improvement projects and targets that are being used to track our performance in relation to sustainability across four key areas; Our Business, Our Products, Our Suppliers, and Our Customers. These matters are contained in our internal Sustainability Strategy and Policy. During the year we completed the Company’s carbon footprint analysis by determining the greenhouse gas (GHG) emissions. Metcash fully complies with the National Greenhouse and Energy Reporting Act (NGER), and the analysis has been provided to the Federal Government and the Carbon Disclosure Project. Our target is to reduce by 20% the energy consumed by the existing Metcash sites in 2008/2009 by 2015. The Metcash Environmental Sustainability Committee (MESC) comprising the CEO and key senior management has formally adopted a suite of policies and procedures to guide sustainability initiatives and improvement planning. These include targets and budgets for each Metcash site and making ‘environmental care’ a condition of employment in the Staff Code of Conduct. The program is focused on sustainability and environmental action in four areas; ‘Our Business’, ‘Our Products’, ‘Our Suppliers’, and ‘Our Customers’. (cid:47)(cid:85)(cid:82)(cid:0)(cid:34)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:26)(cid:0) Goals › › › › › › Sustainable Buildings Consolidated Logistics Tangible Resource Efficiencies Guide and Report Sustainable Work Informed and Engaged Staff Informed and Engaged Community (cid:50)(cid:69)(cid:83)(cid:85)(cid:76)(cid:84)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:68)(cid:65)(cid:84)(cid:69)(cid:0)(cid:73)(cid:78)(cid:67)(cid:76)(cid:85)(cid:68)(cid:69)(cid:26) › › › › › › Completion of the carbon footprint analysis and implementation of a monitoring system. Electricity consumption per employee has been established as 17,341 kWh and 16.3 tonnes of carbon emissions; and water consumption equates to 42.7 litres per employee per day. Voluntary reporting of our NGERS data at 97kT carbon emissions, well below the 125kT reporting required threshold. Completing a $150,000 Detailed Facility Study under an Energy Performance Contract of our top 10 energy consuming sites. Completion of a successful lighting retrofit trial at a smaller site. Establishing a governance structure (including relevant charters and policies) available on www.metcash.com. › Establishing Green teams at our larger sites to identify new initiatives. IGA Community Chest IGA retailers have raised in excess of $45,000,000 over the past 8 years through IGA Community Chest and associated programs. The money has been donated to over 7,000 local community groups, not-for-profit organisations and other worthy causes. (cid:38)(cid:85)(cid:84)(cid:85)(cid:82)(cid:69)(cid:0)(cid:87)(cid:79)(cid:82)(cid:75)(cid:26) (cid:38)(cid:85)(cid:84)(cid:85)(cid:82)(cid:69)(cid:0)(cid:87)(cid:79)(cid:82)(cid:75)(cid:26) › We are completing a ‘whole of business’ Environmental Management System (EMS) for onsite processes to minimise our impact on the environment and to meet the international standard for environmental management ISO14001. This will be implemented at the 76 Metcash Australian warehouses over the next two years. › All new planned large building projects will have regard to the Green Building Council of Australia recommendation for a Green Star rating system with a target rating of 4 or 5. (cid:47)(cid:85)(cid:82)(cid:0)(cid:48)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:83)(cid:26)(cid:0) Goals › Improve Product Packaging, Range + Reporting › Sell More Eco-Friendlier Products (cid:50)(cid:69)(cid:83)(cid:85)(cid:76)(cid:84)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:68)(cid:65)(cid:84)(cid:69)(cid:26) › A Sustainable Packaging Technologist has been employed to review the packaging design of our corporate branded products, with regard to environmental performance. A PIQET software tool is also being utilised. › A new range of 41 BFA certified Organic products has been produced. › Working with suppliers to ensure National Packaging Covenant objectives. (cid:47)(cid:85)(cid:82)(cid:0)(cid:51)(cid:85)(cid:80)(cid:80)(cid:76)(cid:73)(cid:69)(cid:82)(cid:83)(cid:26)(cid:0) Goals › Improve Supplier Sustainability (cid:50)(cid:69)(cid:83)(cid:85)(cid:76)(cid:84)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:68)(cid:65)(cid:84)(cid:69)(cid:26) › We are working with our corporate brand suppliers on sustainability issues and to establish targets. (cid:38)(cid:85)(cid:84)(cid:85)(cid:82)(cid:69)(cid:0)(cid:87)(cid:79)(cid:82)(cid:75)(cid:26) › › Working with the Australian Food and Grocery Council to create a coordinated sustainable supplier questionnaire survey. Continue to work with our suppliers on important issues such as ‘certified’ palm oil usage, sustainable seafood strategies, labelling of tuna and other products, fair trade and genetic modification. (cid:47)(cid:85)(cid:82)(cid:0)(cid:35)(cid:85)(cid:83)(cid:84)(cid:79)(cid:77)(cid:69)(cid:82)(cid:83)(cid:26)(cid:0) Goals › Improve Customer Sustainability (cid:50)(cid:69)(cid:83)(cid:85)(cid:76)(cid:84)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:68)(cid:65)(cid:84)(cid:69)(cid:26) › IGA stores are now involved in Sustainability@Retail support programs that measure carbon footprints and encourage reduced Energy and Water consumption. (cid:48)(cid:72)(cid:79)(cid:84)(cid:79)(cid:0)(cid:67)(cid:79)(cid:85)(cid:82)(cid:84)(cid:69)(cid:83)(cid:89)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:45)(cid:85)(cid:82)(cid:87)(cid:73)(cid:76)(cid:76)(cid:85)(cid:77)(cid:66)(cid:65)(cid:72)(cid:0)(cid:55)(cid:69)(cid:69)(cid:75)(cid:76)(cid:89) › › › › › Encouraging healthy eating via the annual IGA ‘Fast Food Blitz’ program. Continue to support the IGA Community Chest (since 1998), raising funds via the sale of selected products which stores then contribute to community groups. Continue to support the ‘Unsung Heroes Awards’ which recognise and reward hundreds of deserving individuals who give up their time for the good of others. Many IGA stores have independently decided to become plastic bag free Food For Life is IGA’s healthy living philosophy that incorporates healthy information. SUSTAINABILITY@RETAIL SUPPORT PROGRAMS REDUCE CARBON FOOTPRINT (cid:52) (cid:40) (cid:37) (cid:0) (cid:48) (cid:50) (cid:47) (cid:39) (cid:50) (cid:33) (cid:45) (cid:0) (cid:33) (cid:44) (cid:51) (cid:47)(cid:0) (cid:37) (cid:46) (cid:35) (cid:47) (cid:53) (cid:50) (cid:33) (cid:39) (cid:37) (cid:51) (cid:0) (cid:50) (cid:37) (cid:36) (cid:53) (cid:35) (cid:37) (cid:36)(cid:0) (cid:37) (cid:46) (cid:37) (cid:50) (cid:39) (cid:57) (cid:0) (cid:33) (cid:46) (cid:36) (cid:0) (cid:55)(cid:33) (cid:52) (cid:37) (cid:50)(cid:0) (cid:35) (cid:47) (cid:46) (cid:51) (cid:53) (cid:45) (cid:48) (cid:52) (cid:41) (cid:47) (cid:46) (cid:14) C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y 27 M E T C A S H A N N U A L R E P O R T 2 0 1 0 EXECUTIVETEAM (cid:33)(cid:78)(cid:68)(cid:82)(cid:69)(cid:87)(cid:0)(cid:50)(cid:69)(cid:73)(cid:84)(cid:90)(cid:69)(cid:82) (cid:43)(cid:69)(cid:78)(cid:0)(cid:34)(cid:69)(cid:65)(cid:78) (cid:38)(cid:69)(cid:82)(cid:71)(cid:85)(cid:83)(cid:0)(cid:35)(cid:79)(cid:76)(cid:76)(cid:73)(cid:78)(cid:83) (cid:35)(cid:37)(cid:47)(cid:0)(cid:45)(cid:69)(cid:84)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:79)(cid:70)(cid:0)(cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:73)(cid:69)(cid:83) (cid:34)(cid:0)(cid:35)(cid:47)(cid:45)(cid:45)(cid:0)(cid:45)(cid:34)(cid:44) Date of app. to Metcash Ltd: 18.04.05 Mr Andrew Reitzer has 32 years’ experience in the retail/wholesale industry. Previous positions at Metro Cash and Carry Limited include Group Operations Director, heading operations in Russia and Israel, Marketing Director, IT Director and managing various operating divisions. (cid:35)(cid:72)(cid:73)(cid:69)(cid:70)(cid:0)(cid:37)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:12)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:44)(cid:79)(cid:71)(cid:73)(cid:83)(cid:84)(cid:73)(cid:67)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0) (cid:35)(cid:79)(cid:82)(cid:80)(cid:79)(cid:82)(cid:65)(cid:84)(cid:69)(cid:0)(cid:36)(cid:69)(cid:86)(cid:69)(cid:76)(cid:79)(cid:80)(cid:77)(cid:69)(cid:78)(cid:84) (cid:45)(cid:34)(cid:33)(cid:12)(cid:0)(cid:39)(cid:50)(cid:33)(cid:36)(cid:0)(cid:36)(cid:41)(cid:48)(cid:0)(cid:34)(cid:53)(cid:51)(cid:12)(cid:0)(cid:36)(cid:41)(cid:48)(cid:0)(cid:33)(cid:35)(cid:35) Mr Ken Bean has over 39 years’ experience in the retail wholesale industry. Previously Ken was General Manager of Coles-Myer Logistics Pty Ltd and was also responsible for Coles-Myer Asia’s buying offices. Ken has also held senior roles in corporate development as well as finance and administration. He also has significant industrial property development and construction experience and is currently a member of the Australian Logistics Council. (cid:35)(cid:37)(cid:47)(cid:0)(cid:33)(cid:85)(cid:83)(cid:84)(cid:82)(cid:65)(cid:76)(cid:73)(cid:65)(cid:78)(cid:0)(cid:44)(cid:73)(cid:81)(cid:85)(cid:79)(cid:82)(cid:0)(cid:45)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:69)(cid:82)(cid:83) (cid:34)(cid:0)(cid:35)(cid:47)(cid:45)(cid:45)(cid:0)(cid:8)(cid:40)(cid:47)(cid:46)(cid:51)(cid:9)(cid:0)(cid:8)(cid:36)(cid:53)(cid:34)(cid:44)(cid:41)(cid:46)(cid:9)(cid:12)(cid:0)(cid:34)(cid:0)(cid:51)(cid:35)(cid:0)(cid:45)(cid:39)(cid:45)(cid:52)(cid:0) (cid:8)(cid:41)(cid:50)(cid:37)(cid:44)(cid:33)(cid:46)(cid:36)(cid:9)(cid:12)(cid:0)(cid:45)(cid:34)(cid:33)(cid:0)(cid:8)(cid:53)(cid:49)(cid:9) Mr 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, Independent Brands Australia in July 2006. In February 2007, he was appointed Chief Executive Officer. Fergus is a member of the Chartered Institute of Management Accountants of the UK and a graduate of the Metcash Executive Leadership Program. (cid:48)(cid:69)(cid:84)(cid:69)(cid:82)(cid:0)(cid:36)(cid:85)(cid:66)(cid:66)(cid:69)(cid:76)(cid:77)(cid:65)(cid:78) (cid:33)(cid:68)(cid:82)(cid:73)(cid:65)(cid:78)(cid:0)(cid:39)(cid:82)(cid:65)(cid:84)(cid:87)(cid:73)(cid:67)(cid:75)(cid:69) (cid:34)(cid:69)(cid:82)(cid:78)(cid:65)(cid:82)(cid:68)(cid:0)(cid:42)(cid:0)(cid:40)(cid:65)(cid:76)(cid:69) (cid:35)(cid:37)(cid:47)(cid:0)(cid:35)(cid:65)(cid:77)(cid:80)(cid:66)(cid:69)(cid:76)(cid:76)(cid:83)(cid:0)(cid:55)(cid:72)(cid:79)(cid:76)(cid:69)(cid:83)(cid:65)(cid:76)(cid:69) (cid:45)(cid:34)(cid:33)(cid:0)(cid:8)(cid:45)(cid:37)(cid:44)(cid:34)(cid:9) (cid:39)(cid:69)(cid:78)(cid:69)(cid:82)(cid:65)(cid:76)(cid:0)(cid:45)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:82)(cid:0)(cid:38)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0) (cid:34)(cid:33)(cid:0)(cid:8)(cid:40)(cid:47)(cid:46)(cid:51)(cid:9)(cid:12)(cid:0)(cid:33)(cid:35)(cid:33)(cid:12)(cid:0)(cid:45)(cid:34)(cid:33) (cid:35)(cid:72)(cid:73)(cid:69)(cid:70)(cid:0)(cid:41)(cid:78)(cid:70)(cid:79)(cid:82)(cid:77)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)(cid:47)(cid:70)(cid:252)(cid:67)(cid:69)(cid:82) (cid:34)(cid:0)(cid:52)(cid:40)(cid:0)(cid:8)(cid:35)(cid:33)(cid:46)(cid:9) Appointed CEO of Campbells Wholesale in June 1998. Mr Peter Dubbelman has over 26 years’ experience in fast moving consumer goods distribution primarily in multi-site general management. An experienced finance professional, Mr Adrian Gratwicke brings over 22 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. Major growth in the convenience sector has been achieved through the successful development of an efficient 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 three distinct divisions each aligned with the specific needs of the organised and independent Convenience, and Hospitality markets throughout Australia. Mr Bernard Hale was formerly a Director of Metro Cash and Carry Limited of South Africa. Bernard has 35 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 Officer of Metcash Trading Limited on 1 December 2002. Prior to being appointed to his current role he served as an Executive Director of Metcash Trading Limited. M A E T E V I T U C E X E 28 0 1 0 2 T R O P E R L A U N N A H S A C T E M (cid:45)(cid:73)(cid:75)(cid:69)(cid:0)(cid:42)(cid:65)(cid:66)(cid:76)(cid:79)(cid:78)(cid:83)(cid:75)(cid:73) (cid:37)(cid:68)(cid:87)(cid:73)(cid:78)(cid:0)(cid:42)(cid:65)(cid:78)(cid:75)(cid:69)(cid:76)(cid:79)(cid:87)(cid:73)(cid:84)(cid:90) (cid:51)(cid:73)(cid:76)(cid:86)(cid:69)(cid:83)(cid:84)(cid:82)(cid:79)(cid:0)(cid:45)(cid:79)(cid:82)(cid:65)(cid:66)(cid:73)(cid:84)(cid:79) (cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:45)(cid:69)(cid:82)(cid:67)(cid:72)(cid:65)(cid:78)(cid:68)(cid:73)(cid:83)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) Date of app. to Metcash Ltd: 18.04.05 Mr Mike Jablonski has 38 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 Limited; 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. (cid:38)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) (cid:34)(cid:0)(cid:35)(cid:47)(cid:45)(cid:45)(cid:12)(cid:0)(cid:35)(cid:33)(cid:0)(cid:8)(cid:51)(cid:33)(cid:9) Date of app. to Metcash Ltd: 18.04.05 Qualified as a Chartered Accountant (SA) in 1966. From July 1967 to November 1979 with Adcock Ingram Ltd – 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 Edwin Jankelowitz has spent over 36 years in corporate offices of listed companies. He was a member of the Income Tax Special Court in South Africa for 20 years (1977–1997). (cid:35)(cid:37)(cid:47)(cid:0)(cid:41)(cid:39)(cid:33)(cid:0)(cid:36)(cid:73)(cid:83)(cid:84)(cid:82)(cid:73)(cid:66)(cid:85)(cid:84)(cid:73)(cid:79)(cid:78) (cid:33)(cid:51)(cid:51)(cid:47)(cid:35)(cid:41)(cid:33)(cid:52)(cid:37)(cid:0)(cid:36)(cid:41)(cid:48)(cid:0)(cid:41)(cid:46)(cid:0)(cid:38)(cid:47)(cid:47)(cid:36)(cid:0)(cid:50)(cid:37)(cid:52)(cid:33)(cid:41)(cid:44)(cid:41)(cid:46)(cid:39)(cid:0)(cid:8)(cid:38)(cid:41)(cid:52)(cid:9)(cid:37)(cid:56)(cid:37)(cid:35)(cid:0)(cid:36)(cid:41)(cid:48)(cid:0) (cid:41)(cid:46)(cid:0)(cid:50)(cid:37)(cid:52)(cid:33)(cid:41)(cid:44)(cid:0)(cid:45)(cid:46)(cid:39)(cid:52)(cid:0)(cid:8)(cid:33)(cid:35)(cid:38)(cid:50)(cid:51)(cid:9) Mr Silvestro Morabito has over 30 years' experience in grocery retailing both locally and internationally. His career began with Safeway in Victoria. He held various senior positions in operations and IT during this time. After 15 years with Safeway, Mr Morabito was recruited by Dairy Farm International and held senior management roles in New Zealand and Singapore. As CEO of the Cold Storage Supermarket Group in Singapore, he managed the successful acquisition of the number three player in that market and a chain of over 100 supermarkets. In 2005 Mr Morabito was appointed CEO of Action Supermarkets overseeing the sale of the supermarkets to independent retailers and the consolidation of the FAL retail brands. He was then appointed General Manager, WA, IGA Distribution. Silvestro attended The Darden Business School at the University of Virginia in 1998 and completed the TEP program. In February of 2010 he was appointed CEO of IGA Distribution. (cid:36)(cid:65)(cid:86)(cid:73)(cid:68)(cid:0)(cid:42)(cid:79)(cid:72)(cid:78)(cid:83)(cid:84)(cid:79)(cid:78) (cid:40)(cid:65)(cid:82)(cid:82)(cid:89)(cid:0)(cid:50)(cid:85)(cid:77)(cid:80)(cid:76)(cid:69)(cid:82) (cid:35)(cid:37)(cid:47)(cid:0)(cid:41)(cid:39)(cid:33)(cid:0)(cid:38)(cid:82)(cid:69)(cid:83)(cid:72) Mr Harry Rumpler joined the Company in November 1997 as National Fresh Food Manager for Merchandise and was then appointed to General Manager IGAD Queensland in 2005. He was appointed CEO of IGA Fresh in November 2007. Mr Rumpler has been in retail for 33 years working in all areas of the business including operations, merchandise and buying. (cid:35)(cid:72)(cid:73)(cid:69)(cid:70)(cid:0)(cid:40)(cid:85)(cid:77)(cid:65)(cid:78)(cid:0)(cid:50)(cid:69)(cid:83)(cid:79)(cid:85)(cid:82)(cid:67)(cid:69)(cid:83)(cid:0)(cid:47)(cid:70)(cid:252)(cid:67)(cid:69)(cid:82) (cid:45)(cid:0)(cid:34)(cid:53)(cid:51)(cid:0)(cid:8)(cid:37)(cid:45)(cid:48)(cid:44)(cid:47)(cid:57)(cid:45)(cid:37)(cid:46)(cid:52)(cid:0)(cid:50)(cid:37)(cid:44)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46)(cid:51)(cid:9)(cid:12)(cid:0)(cid:38)(cid:33)(cid:40)(cid:50)(cid:41)(cid:12)(cid:0)(cid:42)(cid:48) Mr David Johnston joined Metcash in December 2001. He brings over 32 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 strengthen leadership capability, implement effective succession and talent development strategies, develop and implement Diversity programs and continue to develop ways to make Metcash a great employer. E X E C U T I V E T E A M 29 M E T C A S H A N N U A L R E P O R T 2 0 1 0 BOARD OFDIRECTORS (cid:35)(cid:65)(cid:82)(cid:76)(cid:79)(cid:83)(cid:0)(cid:51)(cid:0)(cid:36)(cid:79)(cid:83)(cid:0)(cid:51)(cid:65)(cid:78)(cid:84)(cid:79)(cid:83) (cid:33)(cid:78)(cid:68)(cid:82)(cid:69)(cid:87)(cid:0)(cid:50)(cid:69)(cid:73)(cid:84)(cid:90)(cid:69)(cid:82) (cid:48)(cid:69)(cid:84)(cid:69)(cid:82)(cid:0)(cid:44)(cid:0)(cid:34)(cid:65)(cid:82)(cid:78)(cid:69)(cid:83) (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:35)(cid:72)(cid:65)(cid:73)(cid:82)(cid:77)(cid:65)(cid:78) (cid:35)(cid:33)(cid:0)(cid:8)(cid:51)(cid:33)(cid:9) Member of the Remuneration & Nomination Committee Date of app. to Metcash Ltd: 18.04.05 Mr Carlos dos Santos is a chartered accountant and is a director of various companies trading in Africa and the Far East. He has had 40 years’ industry experience and has been involved with the Metcash business as a Director since May 1998. (cid:35)(cid:37)(cid:47)(cid:0)(cid:45)(cid:69)(cid:84)(cid:67)(cid:65)(cid:83)(cid:72)(cid:0)(cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:79)(cid:70)(cid:0)(cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:73)(cid:69)(cid:83) (cid:34)(cid:0)(cid:35)(cid:47)(cid:45)(cid:45)(cid:0)(cid:45)(cid:34)(cid:44) (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:69)(cid:80)(cid:85)(cid:84)(cid:89)(cid:0)(cid:35)(cid:72)(cid:65)(cid:73)(cid:82)(cid:77)(cid:65)(cid:78) (cid:45)(cid:34)(cid:33)(cid:0)(cid:8)(cid:45)(cid:37)(cid:44)(cid:34)(cid:47)(cid:53)(cid:50)(cid:46)(cid:37)(cid:9)(cid:12)(cid:0)(cid:34)(cid:0)(cid:35)(cid:47)(cid:45)(cid:45)(cid:37)(cid:50)(cid:35)(cid:37)(cid:0)(cid:8)(cid:40)(cid:47)(cid:46)(cid:51)(cid:9) Date of app. to Metcash Ltd: 18.04.05 Mr Andrew Reitzer has 32 years’ experience in the retail/wholesale industry. Previous positions at Metro Cash and Carry Limited include Group Operations Director, heading operations in Russia and Israel, Marketing Director, IT Director and managing various operating divisions. Chairman of the Remuneration & Nomination Committee Date of app. to Metcash Ltd: 18.04.05 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. S R O T C E R I D F O D R A O B 30 0 1 0 2 T R O P E R L A U N N A H S A C T E M (cid:45)(cid:73)(cid:67)(cid:72)(cid:65)(cid:69)(cid:76)(cid:0)(cid:50)(cid:0)(cid:34)(cid:85)(cid:84)(cid:76)(cid:69)(cid:82) (cid:46)(cid:69)(cid:73)(cid:76)(cid:0)(cid:36)(cid:0)(cid:40)(cid:65)(cid:77)(cid:73)(cid:76)(cid:84)(cid:79)(cid:78) (cid:54)(cid:14)(cid:0)(cid:36)(cid:85)(cid:68)(cid:76)(cid:69)(cid:89)(cid:0)(cid:50)(cid:85)(cid:66)(cid:73)(cid:78) (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) (cid:34)(cid:0)(cid:51)(cid:35)(cid:12)(cid:0)(cid:45)(cid:34)(cid:33) Member of the Audit Risk & Compliance Committee (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82)(cid:0) (cid:44)(cid:44)(cid:34)(cid:0)(cid:8)(cid:53)(cid:55)(cid:33)(cid:9) Member of the Remuneration & Nomination Committee Date of app. to Metcash Ltd: 08.02.07 Date of app. to Metcash Ltd: 07.02.07 Mr Michael 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 Pacific Holdings Limited. 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, Verticon Group Limited, Position Partners Pty Ltd and APN Property Group Ltd. Mr Neil Hamilton is based in Perth and Sydney and has over 27 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 OZ Minerals Ltd, Mount Gibson Iron Limited and Miclyn Express Offshore. (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) (cid:35)(cid:33)(cid:0)(cid:8)(cid:51)(cid:33)(cid:9)(cid:12)(cid:0)(cid:40)(cid:0)(cid:36)(cid:41)(cid:48)(cid:0)(cid:34)(cid:36)(cid:48)(cid:12)(cid:0)(cid:45)(cid:34)(cid:33) Member of the Audit Committee Date of app. to Metcash Ltd: 18.04.05 Mr Dudley Rubin is a chartered accountant and is a director of various companies trading in Africa. He has had 27 years’ industry experience and has been involved with the Metcash business as a director since May 1998. (cid:50)(cid:73)(cid:67)(cid:72)(cid:65)(cid:82)(cid:68)(cid:0)(cid:33)(cid:0)(cid:44)(cid:79)(cid:78)(cid:71)(cid:69)(cid:83) (cid:45)(cid:73)(cid:75)(cid:69)(cid:0)(cid:42)(cid:65)(cid:66)(cid:76)(cid:79)(cid:78)(cid:83)(cid:75)(cid:73) (cid:37)(cid:68)(cid:87)(cid:73)(cid:78)(cid:0)(cid:42)(cid:65)(cid:78)(cid:75)(cid:69)(cid:76)(cid:79)(cid:87)(cid:73)(cid:84)(cid:90) (cid:46)(cid:79)(cid:78)(cid:13)(cid:69)(cid:88)(cid:69)(cid:67)(cid:85)(cid:84)(cid:73)(cid:86)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) (cid:34)(cid:33)(cid:0)(cid:8)(cid:51)(cid:57)(cid:36)(cid:46)(cid:37)(cid:57)(cid:9)(cid:12)(cid:0)(cid:44)(cid:44)(cid:34)(cid:0)(cid:8)(cid:51)(cid:57)(cid:36)(cid:46)(cid:37)(cid:57)(cid:9)(cid:12)(cid:0)(cid:45)(cid:34)(cid:33)(cid:0)(cid:8)(cid:46)(cid:51)(cid:55)(cid:9) Solicitor (non-practising) Chairman of the Audit Risk & Compliance Committee Date of app. to Metcash Ltd: 18.04.05 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 firm, Wentworth Associates, and prior to that a partner of Freehill Hollingdale & Page, solicitors. (cid:44)(cid:79)(cid:85)(cid:0)(cid:42)(cid:65)(cid:82)(cid:68)(cid:73)(cid:78) (cid:38)(cid:79)(cid:82)(cid:77)(cid:69)(cid:82)(cid:0)(cid:35)(cid:37)(cid:47)(cid:0)(cid:41)(cid:39)(cid:33)(cid:0)(cid:36)(cid:73)(cid:83)(cid:84)(cid:82)(cid:73)(cid:66)(cid:85)(cid:84)(cid:73)(cid:79)(cid:78) Date of app. to Metcash Ltd: 18.04.05 Resigned: 9 February 2010 Mr Lou 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 appointment in May 2000 to the role of CEO IGA Distribution. Mr Jardin resigned from this position in February 2010. (cid:39)(cid:82)(cid:79)(cid:85)(cid:80)(cid:0)(cid:45)(cid:69)(cid:82)(cid:67)(cid:72)(cid:65)(cid:78)(cid:68)(cid:73)(cid:83)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) Date of app. to Metcash Ltd: 18.04.05 Mr Mike Jablonski has 38 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 Limited; 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. (cid:38)(cid:73)(cid:78)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0)(cid:36)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:79)(cid:82) (cid:34)(cid:0)(cid:35)(cid:47)(cid:45)(cid:45)(cid:12)(cid:0)(cid:35)(cid:33)(cid:0)(cid:8)(cid:51)(cid:33)(cid:9) Date of app. to Metcash Ltd: 18.04.05 Qualified as a Chartered Accountant (SA) in 1966. From July 1967 to November 1979 with Adcock Ingram Ltd – 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 Edwin Jankelowitz has spent over 36 years in corporate offices of listed companies. He was a member of the Income Tax Special Court in South Africa for 20 years (1977–1997). (cid:42)(cid:79)(cid:72)(cid:78)(cid:0)(cid:50)(cid:65)(cid:78)(cid:68)(cid:65)(cid:76)(cid:76) (cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:89)(cid:0)(cid:51)(cid:69)(cid:67)(cid:82)(cid:69)(cid:84)(cid:65)(cid:82)(cid:89) (cid:34)(cid:37)(cid:35)(cid:12)(cid:0)(cid:38)(cid:35)(cid:48)(cid:33)(cid:12)(cid:0)(cid:38)(cid:35)(cid:41)(cid:51)(cid:12)(cid:0)(cid:45)(cid:33)(cid:41)(cid:35)(cid:36) Mr John Randall joined the Company in 1997. Previously Chief Financial Officer of Metal Manufactures Limited and Overseas Telecommunications Corporation Limited. Member and former President of the Accounting Foundation, University of Sydney, a former National President of the Group of 100, NSW President and National Board member of CPA Australia. B O A R D O F D I R E C T O R S 31 M E T C A S H A N N U A L R E P O R T 2 0 1 0 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. 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 Corporate Governance Principles and Recommendations (Principles) introduced in March 2003 and revised in August 2007. PROPOSED CHANGES TO CORPORATE GOVERNANCE PRINCIPLES The Company notes the Exposure Draft of proposed changes to the Principles (Changes) released on 22 April 2010 by the ASX Corporate Governance Council. The Changes are expected to be finalised on 30 June 2010 and to first apply to the Company for the financial year beginning 1 July 2011. The Company will review and address each of the Changes once the final version has been released. SUMMARY OF COMPLIANCE WITH PRINCIPLES AND RECOMMENDATIONS The table below summarises the Company’s compliance with the Corporate Governance Council’s recommendations. (cid:0) (cid:0) (cid:50)(cid:37)(cid:35)(cid:47)(cid:45)(cid:45)(cid:37)(cid:46)(cid:36)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46)(cid:0) (cid:0) (cid:35)(cid:47)(cid:45)(cid:48)(cid:44)(cid:57)(cid:0)(cid:57)(cid:37)(cid:51)(cid:15)(cid:46)(cid:47)(cid:0) (cid:50)(cid:37)(cid:38)(cid:37)(cid:50)(cid:37)(cid:46)(cid:35)(cid:37)(cid:0) (cid:37)(cid:56)(cid:48)(cid:44)(cid:33)(cid:46)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46) 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 Officer 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 34 Page 34 Page 34 Page 34 Page 35 Page 35 Page 35 Page 36 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 of the code as to: Yes Website › › › the practices necessary to maintain confidence 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. 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. 3.3 Companies should provide the information indicated in the guide to reporting on Principle 3. 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: › › › › 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. 4.3 The Audit Committee should have a formal charter. 4.4 Companies should provide the information indicated in the guide to reporting on Principle 4. Yes Yes Yes Yes Yes Yes Page 36 Page 37 Page 37 Page 37 Website T N E M E T A T S E C N A N R E V O G E T A R O P R O C 32 0 1 0 2 T R O P E R L A U N N A H S A C T E M (cid:0) (cid:0) (cid:50)(cid:37)(cid:35)(cid:47)(cid:45)(cid:45)(cid:37)(cid:46)(cid:36)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46)(cid:0) 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. (cid:0) (cid:35)(cid:47)(cid:45)(cid:48)(cid:44)(cid:57)(cid:0)(cid:57)(cid:37)(cid:51)(cid:15)(cid:46)(cid:47)(cid:0) (cid:50)(cid:37)(cid:38)(cid:37)(cid:50)(cid:37)(cid:46)(cid:35)(cid:37)(cid:0) (cid:37)(cid:56)(cid:48)(cid:44)(cid:33)(cid:46)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46) Yes Website 5.2 Companies should provide the information indicated in the guide to reporting on Principle 5. Yes Principle 6 – Respect the rights of shareholders 6.1 Companies should design a communications policy for promoting effective 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. 7.3 The Board should disclose whether it has received assurance from the Chief Executive Officer (or equivalent) and the Chief Financial Officer (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 financial 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 on Principle 8. Yes Page 38 Yes Yes Yes Page 38 Page 39 Yes Page 39 Yes Yes Yes Yes Page 40 Refer to Remuneration report The Company’s policies and practices and their relationship to the Council’s recommendations are set out in more detail as follows. C O R P O R A T E G O V E R N A N C E S T A T E M E N T 33 M E T C A S H A N N U A L R E P O R T 2 0 1 0 CORPORATE GOVERNANCE STATEMENT CONTINUED 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 Officer and senior executives, who operate in accordance with Board-approved policies and delegated limits of authority. The principal functions of the Board include: › › › › › › charting the direction, strategies and financial objectives of the Company; monitoring implementation of those strategies and the operational and financial performance and risk of each of the Company’s activities; reviewing major capital expenditure, acquisitions, divestments and funding; reviewing performance, remuneration and succession of senior management; monitoring compliance with legal regulatory requirements, including occupational health and safety laws, product safety and the protection of the environment; monitoring the Company’s relationships with its stakeholders and compliance with ethical standards and the Company’s Code of Conduct; › 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 and Nomination Committee reviews the performance of the Chief Executive Officer against qualitative and quantitative criteria, which include profit performance, other financial measures and achievement of the Company’s strategic objectives. This occurred during the 2010 financial year in accordance with this process. The Company maintains a performance evaluation process which 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 2010 financial 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 and 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 benefit from the services of a new Director with particular skills, the Remuneration and Nomination Committee selects a panel of candidates with appropriate expertise and experience. This may be supplemented with advice from external consultants if necessary. The Board, on the Committee’s recommendation, then appoints the most suitable candidate who must stand for election at the next general meeting of shareholders. Directors are not appointed for a fixed term but, under the Company’s Constitution, must be re-elected each 3 years by rotation and are subject to Australian Securities Exchange (ASX) Listing Rules and Corporations Act provisions. Board Composition 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 office held by each Director, please refer to page 30, 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 and Compliance and Remuneration and 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 definition of independence which is derived from the definition 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. T N E M E T A T S E C N A N R E V O G E T A R O P R O C 34 0 1 0 2 T R O P E R L A U N N A H S A C T E M When assessing the independence of a Director, the Board will consider whether the Director: › › › › › is a substantial shareholder of the Company or an officer 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 officer of or otherwise associated directly or indirectly with a material supplier or customer; 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 definition, 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. › › › › › None of the six Non-executive Directors is a substantial shareholder 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 five 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 specific facts of their situation, this test does not preclude them from being considered independent. 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. 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 officer 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. 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 three Executive Directors, Mr Andrew Reitzer, Mr Michael Jablonski and Mr Edwin Jankelowitz. Mr Andrew Reitzer is the Company’s Chief Executive Officer and each of the other two 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 Officer and Chair are not exercised by the same individual. The Board should establish a nomination committee The Board has a Remuneration and Nomination Committee. Remuneration and Nomination Committee The membership of the Remuneration and Nomination Committee consists of the Non-executive Independent Directors who are listed below, together with details of their qualifications and attendance at meetings during the past financial year. (cid:0) (cid:0) (cid:45)(cid:37)(cid:45)(cid:34)(cid:37)(cid:50)(cid:0) P L Barnes (C) C S dos Santos N D Hamilton (C) Chairman (cid:0) (cid:49)(cid:53)(cid:33)(cid:44)(cid:41)(cid:38)(cid:41)(cid:35)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46)(cid:51)(cid:0) BComm (Hons), MBA CA (SA) LLB (cid:45)(cid:37)(cid:37)(cid:52)(cid:41)(cid:46)(cid:39)(cid:51)(cid:0)(cid:40)(cid:37)(cid:44)(cid:36)(cid:0) (cid:36)(cid:53)(cid:50)(cid:41)(cid:46)(cid:39)(cid:0)(cid:18)(cid:16)(cid:17)(cid:16)(cid:0)(cid:8)(cid:38)(cid:57)(cid:9)(cid:0) (cid:45)(cid:37)(cid:37)(cid:52)(cid:41)(cid:46)(cid:39)(cid:51)(cid:0)(cid:33)(cid:52)(cid:52)(cid:37)(cid:46)(cid:36)(cid:37)(cid:36)(cid:0) (cid:36)(cid:53)(cid:50)(cid:41)(cid:46)(cid:39)(cid:0)(cid:18)(cid:16)(cid:17)(cid:16)(cid:0)(cid:8)(cid:38)(cid:57)(cid:9) 4 4 4 4 4 4 C O R P O R A T E G O V E R N A N C E S T A T E M E N T 35 M E T C A S H A N N U A L R E P O R T 2 0 1 0 CORPORATE GOVERNANCE STATEMENT CONTINUED Responsibilities of the Committee include to: › › › › › advise the Board on remuneration of the CEO and senior management; advise the Board on performance-linked compensation for management; oversee the administration of the Metcash Employees Option Plan; advise the Board on directorship and Board Committee appointments, Board succession planning and performance of the CEO; 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 During 2008, 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. Prior to that, the Board reviewed performance each second year using the services of a recognised Board Performance Consultant. The self-evaluation questionnaire has been utilised for the 2009 and 2010 financial years and, accordingly, a recognised Board Performance Consultant will conduct the 2011 financial year review. The questionnaire used for the 2010 review 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 confidential 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 finally 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 and found to be operating at a level that has surpassed the high level identified in the 2009 evaluation and decisions are made in a timely manner. 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: › › › › equal employment opportunity, discrimination and harassment; security of Company records and assets and confidentiality guidelines; conflict of interest, acceptance of gifts, entertainment and services; fraud, corruption and irregular transactions; › › › legal compliance; honest ethical behaviour; environmental protection 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’. The Company also has a ‘Serious Complaints’ policy which 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’. 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 nor 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 final 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 first 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 financed 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 beneficial ownership of Metcash shares held by them. T N E M E T A T S E C N A N R E V O G E T A R O P R O C 36 0 1 0 2 T R O P E R L A U N N A H S A C T E M PRINCIPLE 4 – SAFEGUARD INTEGRITY IN FINANCIAL REPORTING The Committee reviews the effectiveness of risk management policies and procedures by: The Board should establish an Audit Committee The Board has an Audit, Risk and Compliance Committee. The membership of the Audit Risk and Compliance Committee consists of the Non-executive Independent Directors who are listed below, together with details of their qualifications and attendance at meetings during the past financial year. The function of the Audit Risk and Compliance Committee is to advise on the establishment and maintenance of a framework of internal control, effective management of financial and other risks, compliance with laws and regulations and appropriate ethical standards for the management of Metcash. It also gives the Board additional assurance regarding the quality and reliability of financial information prepared for use by the Board in determining policies or for inclusion in the financial statements. In accordance with the Principles, the Committee consists only of Independent Directors and is chaired by an Independent Director who is not the Chairman of the Board Committee Charter The Committee’s Charter, which is summarised below, sets out the specific 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 and Compliance Committee are the effective management of financial and other risks through ensuring that systems and management processes are in place to identify and manage operational, financial and compliance risks. Specific areas of review include: › › › › › overseeing the establishment of a framework within which risks to the Company are identified and mitigated and risk avoidance processes are established and the effectiveness of the risk management process monitored; financial risk and exposure; occupational health and safety; environmental issues; Hazard Analysis and Critical Control Points (HACCP) based food safety program; and › integrity of information technology systems. › › › › › reviewing monthly financial performance against budget and updated forecasts at least quarterly; reviewing the internal audit of the Group’s financial controls, taxation compliance and adherence to policies and regulations; reviewing annually the effectiveness and adequacy of the Group’s insurance program; the provision of reliable management and financial reporting - this is done by reviewing and assessing the: - - quality and timing of management reporting to the Board to enable internal and external reporting of the Company’s risks, operations and financial condition; accounting policies and practices against generally accepted accounting principles and the requirements of the Corporations Law, Australian Accounting Standards and Australian Securities Exchange requirements; - half-yearly and annual financial statements; 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 efficient audit function – this is achieved by: - - - recommending to the Board the appointment of external and internal auditors; reviewing the effectiveness of the external and internal audit functions; ensuring audit scopes are adequate and cover areas of anticipated risk; - reviewing audit findings and management response; - reviewing the independence of the external auditor; - ensuring auditors have the necessary access to Company information and staff to fulfil their obligations. (cid:0) (cid:0) (cid:45)(cid:37)(cid:45)(cid:34)(cid:37)(cid:50)(cid:0) R A Longes (C) M R Butler V D Rubin (C) Chairman (cid:0) (cid:49)(cid:53)(cid:33)(cid:44)(cid:41)(cid:38)(cid:41)(cid:35)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46)(cid:51)(cid:0) BA, LLB, MBA B Sc, MBA CA(SA), HDip BDP, MBA (cid:45)(cid:37)(cid:37)(cid:52)(cid:41)(cid:46)(cid:39)(cid:51)(cid:0)(cid:40)(cid:37)(cid:44)(cid:36)(cid:0) (cid:36)(cid:53)(cid:50)(cid:41)(cid:46)(cid:39)(cid:0)(cid:18)(cid:16)(cid:17)(cid:16)(cid:0)(cid:8)(cid:38)(cid:57)(cid:9)(cid:0) (cid:45)(cid:37)(cid:37)(cid:52)(cid:41)(cid:46)(cid:39)(cid:51)(cid:0)(cid:33)(cid:52)(cid:52)(cid:37)(cid:46)(cid:36)(cid:37)(cid:36)(cid:0) (cid:36)(cid:53)(cid:50)(cid:41)(cid:46)(cid:39)(cid:0)(cid:18)(cid:16)(cid:17)(cid:16)(cid:0)(cid:8)(cid:38)(cid:57)(cid:9) 5 5 5 5 4 5 C O R P O R A T E G O V E R N A N C E S T A T E M E N T 37 M E T C A S H A N N U A L R E P O R T 2 0 1 0 CORPORATE GOVERNANCE STATEMENT CONTINUED The Audit Risk and Compliance Committee acts to ensure that operational, financial 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 financial and operational results. The Committee meets regularly, in private, 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’. In principle, the appointment of an external auditor would be based on a tender process conducted by the Audit Risk and Compliance Committee 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: › › 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 reflects 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 reflects any legislative or regulatory requirements or ‘best practice’ developments. Disclosure responsibilities and procedures Metcash has designated the Chairman, Chief Executive Officer and Company Secretary as ‘Disclosure Officers’. 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 Officers 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 Officer 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 Officer 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 believes that shareholder and market confidence 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 financial 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 five years of ASX and media announcements and annual reports. This information is shown under the heading ‘Investors’. Electronic proxy voting has been introduced. 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 and Compliance Committee (AR&CC), 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 identification of material business risk categories and the development of risk profiles for all the major segments and functions of the business. T N E M E T A T S E C N A N R E V O G E T A R O P R O C 38 0 1 0 2 T R O P E R L A U N N A H S A C T E M Material business risks that have been identified and included in the Risk Management Framework are grouped under the following categories: › › › › › › › › › › › › › Asset Management; Business Continuity; Health, Safety, Environment, Community (HSEC); Compliance and Legal (Non-HSEC); Employee; Financial Reporting; Criminal Activity; Information Technology; Reputational; Solvency; Operations/Warehouse; Merchandising, Customer and Supplier (i.e. Supply chain); and Strategic/Sustainability. The risk management process includes the following elements: › Risk assessment; - risk identification; - risk analysis; - risk treatment; Monitoring and review; Recording the risk management process. › › Roles and responsibilities In addition to the specific 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 significant risk issues and the management of previously reported material risk issues. The Audit Risk and 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 and 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 significant operational incidents as they become aware of them. This ‘front line’ of risk management is supported by specialised risk management teams covering specific 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 profile 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 profiles 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: › › › › › confirmation of key controls; reporting of incidents: recording and monitoring of key risk indicators (‘real time’ monitoring of residual risk levels); follow-up on risk treatment/action plans; escalation of issues; regular reporting processes to all levels of management. The ongoing process of communication, consultation, monitoring and review enables management to demonstrate continuous improvement whilst 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 profiles 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 defining clear accountabilities, responsibilities and embedding Enterprise Risk Management (ERM) in planning, strategy and company culture. The Board and the Audit Risk and 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. CEO and Finance Director Declaration The Chief Executive Officer 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 financial reports present a true and fair view, in all material respects, of the Company’s financial 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 Officer 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 financial reporting risks. F I N A N C I A L R E P O R T C O N T E N T S P A G E 39 M E T C A S H A N N U A L R E P O R T 2 0 1 0 CORPORATE GOVERNANCE STATEMENT CONTINUED PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIBLY The Board should establish a Remuneration Committee The Board has established a Remuneration and 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. T N E M E T A T S E C N A N R E V O G E T A R O P R O C 40 0 1 0 2 T R O P E R L A U N N A H S A C T E M FINANCIAL REPORT Directors' Report Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. Corporate Information Summary of Significant Accounting Policies Segment Information Revenue and Expenses Income Tax Dividends Paid and Proposed Cash and Cash Equivalents Trade and Other Receivables (current) Inventories Receivables (non-current) Investments in Associates Other Financial Assets (non-current) Property, Plant and Equipment Intangible Assets and Goodwill Share-based Payments Trade and Other Payables (current) Interest Bearing Loans and Borrowings Derivative Financial Instruments Provisions Other Financial Liabilities Contributed Equity and Reserves Financial Risk Management Objectives and Policies Commitments Related Party Disclosure Directors' and Executives' Disclosures Auditor's Remuneration Business Combinations Earnings per Share Contingent Liabilities Subsequent Events Directors' Declaration Auditor's Independence Declaration Independent Auditor's Report ASX Additional Information 42 55 56 57 58 59 59 69 70 71 72 73 73 75 75 76 77 77 78 80 81 81 82 82 83 83 85 89 90 94 97 97 98 99 99 100 101 102 104 F I N A N C I A L R E P O R T C O N T E N T S P A G E 41 M E T C A S H A N N U A L R E P O R T 2 0 1 0 DIRECTORS’ REPORT For the year ended 30 April 2010 Your Directors submit their report for the year ended 30 April 2010. DIRECTORS The names and details of the Company’s Directors in office during the financial year 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) resigned from the Metcash Board on 9 February 2010 Richard A Longes V Dudley Rubin Directors were in office for this entire period unless otherwise stated. For qualifications and experience of Directors please refer to the Board of Directors section of this annual report. COMPANY SECRETARY John A Randall For qualifications and experience of the Company Secretary please refer to the 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: (cid:0) (cid:0) Carlos S dos Santos Peter L Barnes Andrew Reitzer Michael R Butler Neil D Hamilton Michael R Jablonski Edwin M Jankelowitz Richard A Longes V Dudley Rubin EARNINGS PER SHARE (cid:0) Basic earnings per share Diluted earnings per share DIVIDENDS (cid:0) (cid:0) Final dividends for 2010 recommended – on ordinary shares Dividends paid in the year Interim for the year – on ordinary shares in December 2009 Final for 2009 recommended in the 2009 financial report – on ordinary shares Total dividends paid in the year 2010 Dividends declared per share T R O P E R ' S R O T C E R I D 42 0 1 0 2 T R O P E R L A U N N A H S A C T E M (cid:46)(cid:53)(cid:45)(cid:34)(cid:37)(cid:50)(cid:0)(cid:47)(cid:38)(cid:0) (cid:47)(cid:50)(cid:36)(cid:41)(cid:46)(cid:33)(cid:50)(cid:57)(cid:0)(cid:51)(cid:40)(cid:33)(cid:50)(cid:37)(cid:51)(cid:0) (cid:46)(cid:53)(cid:45)(cid:34)(cid:37)(cid:50)(cid:0)(cid:47)(cid:38)(cid:0)(cid:47)(cid:48)(cid:52)(cid:41)(cid:47)(cid:46)(cid:51)(cid:0) (cid:47)(cid:54)(cid:37)(cid:50)(cid:0)(cid:0)(cid:47)(cid:50)(cid:36)(cid:41)(cid:46)(cid:33)(cid:50)(cid:57)(cid:0)(cid:51)(cid:40)(cid:33)(cid:50)(cid:37)(cid:51) 54,100 177,083 1,750,000 50,000 20,000 – 320,000 128,154 15,000 – – 1,200,000 – – 380,000 650,000 – – (cid:35)(cid:37)(cid:46)(cid:52)(cid:51)(cid:0) 29.74 29.69 (cid:35)(cid:37)(cid:46)(cid:52)(cid:51)(cid:0) (cid:4)(cid:7)(cid:77) 15.0 114.8 11.0 84.2 14.0 107.1 191.3 26.0 CORPORATE INFORMATION Corporate structure The principal activities during the year of entities within the consolidated entity were the wholesale distribution and marketing of groceries, liquor, hardware and associated products. 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 4. Summarised operating results are as follows: (cid:0) (cid:0) (cid:0) (cid:0) Business segments Food Distribution Cash & Carry Distribution Liquor Distribution Hardware Distribution (Acquired 25 March 2010) Consolidated entity adjustments/(unallocated amounts) (cid:18)(cid:16)(cid:17)(cid:16) (cid:0) (cid:50)(cid:37)(cid:54)(cid:37)(cid:46)(cid:53)(cid:37)(cid:51)(cid:0) (cid:4)(cid:108)(cid:77)(cid:0) (cid:48)(cid:50)(cid:47)(cid:38)(cid:41)(cid:52)(cid:0) (cid:34)(cid:37)(cid:38)(cid:47)(cid:50)(cid:37)(cid:0)(cid:52)(cid:33)(cid:56)(cid:0) (cid:4)(cid:108)(cid:77) 7,129.9 1,685.3 2,640.6 61.6 11,517.4 90.7 346.6 28.8 36.1 1.5 413.0 (83.0) Consolidated entity sales and profit from ordinary activities before income tax expense 11,608.1 330.0 SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS No significant changes in the state of affairs of the Company occurred during the financial period, not otherwise disclosed in the ‘Chairman’s and CEO’s report’. SIGNIFICANT EVENTS AFTER THE BALANCE DATE On 9 June 2010, the Group entered into a number of Interest Rate Swap contracts with various major Australian Banks. The principal hedged is $300,000,000 with a weighted maturity of 2 years and a weighted average interest rate of 5.059%. The Group considers that these derivatives will be effective hedges in accordance with AASB 139 Financial Instruments: Recognition and Measurement and will be accounted for as a cash flow hedge in accordance with the Company’s stated accounting policies. On 1 July 2010, the Group entered into an agreement with Pick n Pay Retailers (Pty) Limited (Pick n Pay) of South Africa to acquire the shares of Interfrank Group Holdings Pty Ltd, the company which owns the Franklins business (which consists of 85 Supermarkets, comprising 77 corporate stores plus supply to 8 franchised stores), from Pick n Pay for a consideration of approximately $215,000,000, to be paid on completion – expected by 30 September, 2010. LIKELY DEVELOPMENTS AND EXPECTED RESULTS Information with respect to likely developments is set out within the ‘Chairman’s and CEO’s report’. D I R E C T O R S ' R E P O R T 43 M E T C A S H A N N U A L R E P O R T 2 0 1 0 DIRECTORS’ REPORT CONTINUED 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: (cid:0) (cid:45)(cid:37)(cid:37)(cid:52)(cid:41)(cid:46)(cid:39)(cid:51)(cid:0)(cid:47)(cid:38)(cid:0)(cid:35)(cid:47)(cid:45)(cid:45)(cid:41)(cid:52)(cid:52)(cid:37)(cid:37)(cid:51) (cid:0) (cid:0) (cid:0) (cid:0) (cid:36)(cid:41)(cid:50)(cid:37)(cid:35)(cid:52)(cid:47)(cid:50)(cid:51)(cid:108)(cid:0)(cid:45)(cid:37)(cid:37)(cid:52)(cid:41)(cid:46)(cid:39)(cid:51)(cid:0) (cid:50)(cid:37)(cid:45)(cid:53)(cid:46)(cid:37)(cid:50)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46)(cid:0)(cid:0) (cid:6)(cid:0)(cid:46)(cid:47)(cid:45)(cid:41)(cid:46)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46)(cid:0) (cid:33)(cid:53)(cid:36)(cid:41)(cid:52)(cid:0)(cid:50)(cid:41)(cid:51)(cid:43)(cid:0)(cid:0) (cid:6)(cid:0)(cid:35)(cid:47)(cid:45)(cid:48)(cid:44)(cid:41)(cid:33)(cid:46)(cid:35)(cid:37) 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* (Lou Jardin) Richard A Longes V Dudley Rubin 8 8 8 8 7 7 8 7 6 8 8 4 4 4 – – 4 – – – – – 5 – – – 4 – – – – 5 5 * Mr Jardin resigned from the Metcash Board on 9 February 2010 All Directors were eligible to attend all meetings held except for Mr Jardin, who was eligible to attend seven Directors’ meetings. Committee membership As at the date of this report, the Company had an Audit Risk and Compliance Committee and a Remuneration & Nomination Committee. Members acting on the committees of the Board during the year were: (cid:33)(cid:53)(cid:36)(cid:41)(cid:52)(cid:0)(cid:50)(cid:41)(cid:51)(cid:43)(cid:0)(cid:6)(cid:0)(cid:35)(cid:47)(cid:45)(cid:48)(cid:44)(cid:41)(cid:33)(cid:46)(cid:35)(cid:37)(cid:0) (cid:50)(cid:37)(cid:45)(cid:53)(cid:46)(cid:37)(cid:50)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46)(cid:0)(cid:6)(cid:0)(cid:46)(cid:47)(cid:45)(cid:41)(cid:46)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46) R A Longes (c) M R Butler V Dudley Rubin P L Barnes (c) C S dos Santos N D Hamilton (c) Designates the chairman of the committee. 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 Officers. 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 Hielscher, B A Hogan, M Wesslink and Joao Louis Jardim (Lou Jardin) together with all of the current Directors and certain other officers of the Company. This indemnity is against any liability to third parties (other than related Metcash companies), by such officers unless the liability arises out of conduct involving a lack of good faith. The indemnity also includes costs or expenses incurred by an officer in unsuccessfully defending proceedings relating to that person’s position. (ii) During the financial year, the Company has paid, or agreed to pay, a premium in respect of a contract of insurance insuring officers (and any persons who are officers in the future) against certain liabilities incurred in that capacity. Disclosure of the total amount of the premiums and the nature of the liabilities in respect of such insurance is prohibited by the contract of insurance. T R O P E R ' S R O T C E R I D 44 0 1 0 2 T R O P E R L A U N N A H S A C T E M SHAREHOLDER RETURNS The ongoing performance of the Group has ensured that returns to shareholders, through both dividends and capital growth, has continued. (cid:0) (cid:18)(cid:16)(cid:17)(cid:16)(cid:0) (cid:18)(cid:16)(cid:16)(cid:25)(cid:0) (cid:18)(cid:16)(cid:16)(cid:24)(cid:0) (cid:18)(cid:16)(cid:16)(cid:23)(cid:0) (cid:18)(cid:16)(cid:16)(cid:22) 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 (%) 31.1 29.7 26.0 8.3 87.5 17.3 4.15 6.3 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 * For 2006 and 2007 CULS (Convertible, redeemable, subordinated, unsecurred loan notes) and CUPS (Convertible Undated Preference Shares) are defined respectively. ROUNDING The amounts contained in this report and in the financial 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. 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 modified 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. 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 Officer (CEO) and the senior executive team. The principal responsibilities of the Committee (which are available on the Company’s website) are to: › › › › › › › review and advise the Board annually on the remuneration and components of remuneration for the Chief Executive Officer and executives reporting directly to the Chief Executive Officer; review management recommendations and advise the Board on performance linked compensation packages for executives, Directors’ and executives’ retirement, pension and superannuation schemes, and employee participation schemes, including executive share and share option plans and employee share plans; administer 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; annually evaluate and advise the Board on the performance of the Chief Executive Officer; advise the Board on the successor to the Chief Executive Officer; and assess the effectiveness of the Board as a whole and its committees as set out in Section 7 of the Metcash Board Charter. The Remuneration & Nomination Committee assesses the appropriateness of the nature and amount of remuneration of Directors and senior executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality Board and executive team. Compensation structure In accordance with best practice corporate governance, the structure of Non-executive Director and senior executive remuneration is separate and distinct. D I R E C T O R S ' R E P O R T 45 M E T C A S H A N N U A L R E P O R T 2 0 1 0 DIRECTORS’ REPORT CONTINUED Non-executive Director compensation The limit to 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: (cid:0) (cid:0) Chairman Deputy Chairman/ Chairman Remuneration & Nomination Committee Chairman, Audit Risk & Compliance Committee Directors (3) (cid:34)(cid:33)(cid:51)(cid:37)(cid:0)(cid:38)(cid:37)(cid:37)(cid:0) (cid:4)(cid:0) (cid:35)(cid:40)(cid:33)(cid:41)(cid:50)(cid:0)(cid:38)(cid:37)(cid:37)(cid:0) (cid:4)(cid:0) (cid:35)(cid:47)(cid:45)(cid:45)(cid:41)(cid:52)(cid:52)(cid:37)(cid:37)(cid:0)(cid:38)(cid:37)(cid:37)(cid:0) (cid:4)(cid:0) (cid:51)(cid:53)(cid:48)(cid:37)(cid:50)(cid:33)(cid:46)(cid:46)(cid:53)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46)(cid:0) (cid:4)(cid:0) (cid:52)(cid:47)(cid:52)(cid:33)(cid:44)(cid:0) (cid:4) 105,000 156,784 10,500 14,461 286,745 105,000 72,784 105,000 315,000 26,250 – 31,500 – – 14,461 192,245 11,813 31,185 143,063 377,685 630,000 255,818 42,000 71,920 999,738 Non-executive Directors do not receive bonuses and are not entitled to participate in the Company’s share option scheme. A retirement benefit was paid to Non-executive Directors for past service. The benefits were in accordance with Section 8.3(g) and (h) of the Company’s Constitution and Section 200 of the Corporations Law. The retirement benefit scheme was discontinued as at the date of the 2005 Annual General Meeting and accrued benefits (as shown below) were frozen at that time. Directors’ fees were increased based on independent advice to reflect the cessation of this benefit. (cid:33)(cid:35)(cid:35)(cid:50)(cid:53)(cid:37)(cid:36)(cid:0)(cid:34)(cid:37)(cid:46)(cid:37)(cid:38)(cid:41)(cid:52)(cid:51)(cid:0) R A Longes P L Barnes (cid:4) 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 value of individual skills, the need to attract and retain essential key skills for the growth and development of the company and to provide sufficient 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: › › › › › › provide competitive rewards to attract and retain executive talent; apply Key Performance Indicators (KPIs) to deliver results across the Group and to a significant portion of the total reward; link rewards to executives to the creation of value to shareholders; assess and reward executives using financial and non-financial measures of performance; ensure remuneration arrangements between executives are equitable and facilitate the deployment of human resources around the Group; and limit severance payments on termination to pre-established contractual arrangements that do not commit the Group to making unjustified payments in the event of non-performance. Advisers Independent advisers 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. T R O P E R ' S R O T C E R I D 46 0 1 0 2 T R O P E R L A U N N A H S A C T E M Service contracts Service contracts exist for senior executives including the Chief Executive Officer. They are unlimited in term but capable of termination on 15 months’ notice in the case of the Chief Executive Officer and nine months' notice in the case of executives who are direct reports to the Chief Executive Officer. The Group retains the right to terminate a contract immediately, by making payments equal to the notice period, in lieu of notice. In addition, should termination be as a result of redundancy, a further payment of nine months of fixed remuneration (base salary plus superannuation) is payable to the Chief Executive Officer and six months’ further payment to executives who are direct reports to the Chief Executive Officer. The Chief Executive Officer and executives, who are direct reports to the Chief Executive Officer, may terminate their employment by giving three months' notice. The service contracts typically outline the components of remuneration paid to executives, but do not prescribe how remuneration levels are reviewed each year to take account of cost-of-living changes, any change in the scope of the role performed by the executive and any changes required to meet the principles of the remuneration policy. A new service contract was put in place for the recently appointed CEO of IGA Distribution. This contract contains similar elements to other executives' service contracts and complies with the Federal Government’s law on executive contracts limiting any termination payments to a maximum amount of twelve months of base salary. Any new executive service contracts which may be put in place in the future will also comply. Remuneration Remuneration is divided into two components. The first is the fixed or base component, which is made up of base salary and superannuation benefits. The second is the ‘at risk’ component, which is subject to 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. 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 To be considered eligible the position: Superannuation benefits are delivered in accordance with the Australian Government’s Superannuation Guarantee Levy, which currently sits at 9% of fixed remuneration to a maximum of $160,680 per annum ($175,141 including superannuation capped at the maximum contribution of $14,461). › › › operates as a member of the Metcash Executive Management Team or Pillar Executive Management Team; has objectives that are defined in terms of group/pillar objectives; has significant input into the group/pillar strategic plan and direction; and 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, 42.86% 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 financial objectives of the pillar concerned which aggregate to overall group objectives. Two KPIs are utilised–sales and profit–to form a matrix to measure performance, usually with the previous year’s sales and profit 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 profit budgets. Bonuses are normally paid at six- monthly intervals with the first payment based on the first half results and the second payment based on the achievement for the full year less the first half payment. For the 2010 year, the first half bonus payment was deferred to the end of the year. › has direct impact on profitability. 3. Participants eligible for bonus at 50% fixed remuneration (Management bonus scheme) (Number of participants: 137) 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 profit targets and contribute strategically to group and/or business pillar objectives. To be eligible, the position: › › › has extensive specialist technical or professional knowledge in an area of expertise; has high level budgetary and/or strategic responsibility; 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: For the 2010 year, the payment for achieving the minimum target was set at 33.3% of the maximum; a payment of 73.3% of the maximum payment for the achievement of budget and 100% was paid for meeting the stretch objectives. › › › › has a positive contribution to profitability; is a specialist in a field; has a direct impact on sales and profit; or may have an element of retention or attraction. 5. Other incentive schemes Other incentive schemes are also in operation and designed specifically for warehouse supervisors, re-buyers, stock controllers, merchandisers and other specialist key roles and are based on achievement of internal KPI’s e.g. cost per case etc. 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-funding. That is, that the cost of the bonus has been deducted from profit 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 significant contribution to the achievement of the Company’s financial objectives. 2. Participants eligible for bonus at 75% of fixed remuneration (Executive management bonus scheme) (Number of participants: 54) These positions have a high level/critical strategic accountability that directly impacts on company performance. D I R E C T O R S ' R E P O R T 47 M E T C A S H A N N U A L R E P O R T 2 0 1 0 DIRECTORS’ REPORT CONTINUED Hurdles The view of the Board is that earnings per share is the most appropriate hurdle measure as it aligns the long term interests of shareholders and management. Other commonly used measures are subject to external influences whilst earnings per share are company specific, reflect management success and directly relate to the interests of shareholders. The Board has accepted advice from external remuneration specialists that ’underlying’ earnings per share should be used. This is defined as reported earnings per share excluding amortisation and non-recurring items and best reflects the underlying ongoing profitability of the company. Use of Derivatives over unvested Metcash securities For information on the Company’s policy, please refer to ’Principle 3 Promote Ethical and Responsible Decision Making’ in the Corporate Goverance Statement contained earlier in this annual report. 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 August 2006, a Long Term Retention incentive was provided to the Chief Executive Officer, Finance Director, Group Merchandising Director, CEO of IGA Distribution and Chief Information Officer on the terms as set out below. A long-term retention payment of $5 million to the Chief Executive Officer and $2 million to each of the Finance Director, Group Merchandising Director, CEO of IGA Distribution and the Chief Information Officer subject to achievement of specific hurdles over a five-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 is 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 five-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. T R O P E R ' S R O T C E R I D 48 0 1 0 2 T R O P E R L A U N N A H S A C T E M The period of the incentive concluded on 30 April 2010. It was determined that, on a underlying earnings per share basis. 92.98 percent of the incentive had been earned. As each of the five participants remain in the Company’s employ, 92.98 percent of their incentive was agreed to be paid as follows: (cid:0) Chief Executive Officer (Mr A Reitzer) Finance Director (Mr E Jankelowitz) Group Merchandising Director (Mr M Jablonski) Former CEO of IGA Distribution (Mr L Jardin) Chief Information Officer (Mr B Hale) A further Long Term Retention Incentive was entered into in April 2007 as follows. A long-term retention payment of $1 million to each of the Chief Executive Officer Campbells Wholesale, Chief Executive Officer, Logistics and Corporate Development, Chief Executive Officer ALM and the Chief Human Resources Officer subject to achievement of specific hurdles over a five-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 is 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 five-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. As discussed under ’Hurdles’ on this page, underlying earnings per share will be used in calculating performance. A long term retention payment of $1 million to each of the CEO, IGA Fresh and the General Manager, Finance (entered into in May 2009) subject to achievement of specific hurdles over a five 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 is 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 five year period, no payment will be made. (cid:4) 4,649,000 1,859,600 1,859,600 1,859,600 1,859,600 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. These Executives were not previously included in the 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 benefits from the options issued to them in 2008, but which benefits 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 profits in respect of exercising the options. In this case, pre-tax profit 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 profit earned from exercising the 2008 options. As discussed under "Hurdles" on this page, ’underlying’ earnings per share will be used in calculating performance. During the year a three year retention incentive was provided to the Chief Executive Officer, commencing at the expiration of the five year retention incentive provided in August 2006. The incentive commenced on 1 May 2010 and concludes on 30 April 2013. It is based on annual compounded earnings per share (eps) and payable at the end of the three year incentive period. A minimum payment of $3 million will be paid for the achievement of a 5% annual compounded eps for the three years, based on earnings for the 2010 year, and a maximum payment of $5 million for the achievement of a 10% or better compounded eps over that period. Pro rata payments are to be made for achievements between 5% and 10%. As discussed under ’Hurdles’ on page 48, ’underlying’ earnings per share will be used in calculating performance. It is anticipated that in view of the establishment of the new Performance Rights Plan (see section below), there will not be a general requirement for a further long- term retention plan other than that already announced for the Chief Executive Officer. 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 financial year preceding the tranche exercise date must be at least equal to a 12.5% annual increase of earnings per share compounded from the 2005 earnings per share, adjusted for any dilution that might occur as a consequence of any alteration to the number of ordinary shares issued. Before options are exercised by Executive Directors, agreement is obtained from the Remuneration & Nomination Committee, which verifies that the hurdle has been achieved with confirmation obtained from the Company’s external auditor. The Remuneration & Nomination Committee has reviewed the hurdles for the first two tranches (60% and 20%) of the 2005 option issue and concluded that, based on ’underlying’ earnings, the hurdles have been met and those options can be exercised. 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 financial year to be achieved in the financial year prior to the financial 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 verifies that the hurdle has been achieved with confirmation 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. Performance Rights A new Long Term Incentive Plan, Performance Rights (The Rights Plan) was approved by the Board on 25 May 2010 following a remuneration review undertaken by the Chief Human Resources Officer in conjunction with external remuneration advisers. The review found the following: › › › the Federal Government has changed the taxation treatment of Options so that a “tax event” now occurs at vesting rather than at exercising. This change essentially makes Options unattractive from the point of view of a long term incentive; the market data shows that 36% of the ASX top 100 companies use Performance Rights as their LTI vehicle, 21% use Options and the remainder utilise other means including a combination of both. External advisers suggest Performance Rights are now industry best practice; and it is essential that any LTI plan drives a real incentive to align the interests of management and shareholders. Performance Rights provide this incentive over Options. The Rights Plan will be offered only to the top sixty (approximately) Metcash Executives and Senior Managers. The essential elements of the Rights Plan are as follows: › › › › › › share Rights are essentially “free” shares i.e. no “strike price”; as such, significantly fewer rights are offered than is currently the case with Options; they are offered annually with vesting after three years subject to achievement of hurdle rates set between 5% and 10% compound underlying eps growth. (i.e. 5% compound underlying eps growth earns 50% of the right’s allocation and 10% EPS growth earns 100% of the allocation); they are issued only to the top sixty (approximately) executive and Senior managers with “direct sight” to the bottom line growth of the company; this is to be the Company’s principal long-term incentive offer; allocations are determined on the basis of remuneration mix. For example, if TEC is 47% of total remuneration, STI 35% and LTI 19% and an executive has a TEC of $200,000, then the number of share rights issued would be calculated as $200,000 x 19% divided by the value weighted price of Metcash shares for the five days prior to the date of issue; and › rights vest after 3 years subject to achievement of hurdles. Employee Share Trust (EST) On 25 May 2010, the Board approved the establishment of an Employee Share Trust, ’The Metcash Employee Share Trust’. The EST functions as an administrative vehicle through which employee options and Performance Rights (and any other form of long term incentive) will be issued, administered, managed and reported. The EST is a separate entity from Metcash and has been established in conjunction with Australian Executor Trustees and is subject to the rules of the Trust. The EST provides the following services and benefits: › › › › › › establishes an “arm’s length” relationship between Metcash and the Trust for the issuance of Options and Performance Rights to employees; Options and Rights are held by the Trust in the name of the employee and the Trust acts on those in accordance with instructions from Metcash and the rules of the trust; buys shares on market or issues new shares in accordance with instructions from Metcash; the Trust is created solely for the purposes of issuing, holding and administering Rights or Options for and on behalf of Metcash employees; does not diminish in any way the rights and interests of the employees who hold Options or Rights through the Trust; and the Trust reports on an annual basis on its activities throughout the financial year. Salary Reviews and Bonuses FY2009/2010 As a precaution, management put in place at the beginning of the 2010 financial year a salary increase deferral for all employees earning more than $50,000 per annum. The Company’s profit before tax targets for the 2010 year were met and the salary increases that otherwise would have been paid at the beginning of the year have been paid. Bonuses for the year have been paid (as all salary increases have been paid) where bonus targets have been met. Non-executive Directors fees and allowances remain at their September 2008 level. AT RISK REMUNERATION AND COMPANY PERFORMANCE The ‘at risk’ remuneration, with the short-term focus on sales and profit and the long-term segment influenced by earnings per share and share price, has contributed to the growth in the shareholder returns as identified in the Shareholder Returns section of the Directors’ Report. D I R E C T O R S ' R E P O R T 49 M E T C A S H A N N U A L R E P O R T 2 0 1 0 DIRECTORS’ REPORT CONTINUED DETAILS OF KEY MANAGEMENT PERSONNEL (cid:36)(cid:41)(cid:50)(cid:37)(cid:35)(cid:52)(cid:47)(cid:50)(cid:51)(cid:0) (cid:0) (cid:37)(cid:56)(cid:37)(cid:35)(cid:53)(cid:52)(cid:41)(cid:54)(cid:37)(cid:51) Carlos S dos Santos Non-executive Chairman Ken Bean CEO Group Logistics and Corporate Development Peter L Barnes Andrew Reitzer Michael R Butler Neil D Hamilton Non-executive Deputy Chairman Fergus Collins CEO Australian Liquor Marketers Chief Executive Officer Peter Dubbelman CEO Campbells Wholesale Non-executive Director Adrian Gratwicke General Manager Finance Non-executive Director Bernard Hale Chief Information Officer Michael R Jablonski Group Merchandise Director David Johnston Chief Human Resources Officer Edwin M Jankelowitz Finance Director Silvestro Morabito CEO IGA Distribution (appointed 17 February 2010) Richard A Longes V Dudley Rubin Non-executive Director Harry Rumpler CEO IGA Fresh Non-executive Director Joao Louis S Jardim (Lou Jardin)* Former CEO IGA Distribution * Mr Jardin resigned from the Metcash Board on 9 February 2010 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 2010 (cid:0) (cid:0) (cid:0) (cid:0) (cid:0) (cid:51)(cid:33)(cid:44)(cid:33)(cid:50)(cid:57)(cid:0) (cid:33)(cid:46)(cid:36)(cid:0)(cid:38)(cid:37)(cid:37)(cid:51)(cid:0) (cid:4)(cid:0) SHORT-TERM (cid:0) (cid:0) (cid:34)(cid:47)(cid:46)(cid:53)(cid:51)(cid:0) (cid:4)(cid:0) POST EMPLOYMENT (cid:0) (cid:47)(cid:52)(cid:40)(cid:37)(cid:50)(cid:0) (cid:0) (cid:51)(cid:53)(cid:48)(cid:37)(cid:50)(cid:13)(cid:0) (cid:34)(cid:37)(cid:46)(cid:37)(cid:38)(cid:41)(cid:52)(cid:51)(cid:0) (cid:33)(cid:46)(cid:46)(cid:53)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46)(cid:0) (cid:4)(cid:0) (cid:4)(cid:0) LONG TERM (cid:0) (cid:34)(cid:47)(cid:46)(cid:53)(cid:51)(cid:0) (cid:33)(cid:46)(cid:36)(cid:0)(cid:44)(cid:37)(cid:33)(cid:54)(cid:37)(cid:0) (cid:4)(cid:0) Directors C S dos Santos (iv) 272,463 P Barnes (iv) 177,963 – – – – 10,846 12,931 – – 1,720,875 978,526 3,837 53,087 686,588 A Reitzer M Butler 115,500 N Hamilton 115,500 – – – – 10,395 10,395 – – M Jablonski 674,688 392,490 23,000 14,342 273,961 E Jankelowitz 706,086 396,301 – 14,342 274,467 490,058 287,484 17,250 15,301 203,391 L Jardin (i) R Longes D Rubin Executives 131,250 115,500 – – K Bean 537,290 325,301 S Morabito (ii) 102,988 58,208 – – – – 11,813 10,395 – – 54,167 212,035 2,781 – F Collins 519,914 219,350 14,000 14,342 210,841 P Dubbelman 504,310 189,418 23,000 27,083 211,677 A Gratwicke 484,792 280,500 B Hale 536,401 324,709 D Johnston 413,910 255,771 – – – 29,375 222,808 53,979 271,018 51,129 209,196 H Rumpler 378,255 226,800 30,000 24,342 222,484 7,997,743 3,934,858 111,087 421,045 2,998,466 TERMINATION BENEFITS SHARE-BASED PAYMENTS TOTAL TOTAL PERFORMANCE RELATED (%) (cid:52)(cid:37)(cid:50)(cid:45)(cid:13)(cid:0) (cid:41)(cid:46)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46)(cid:0) (cid:34)(cid:37)(cid:46)(cid:37)(cid:38)(cid:41)(cid:52)(cid:51)(cid:0) (cid:4)(cid:0) (cid:37)(cid:56)(cid:48)(cid:37)(cid:46)(cid:51)(cid:37)(cid:0) (cid:4)(cid:0) (cid:4)(cid:0) (cid:5) – – – – – – – – – – – – – – – – – – – – – – – 283,309 190,894 76,695 3,519,608 48.42% – – 125,895 125,895 – – 41,543 1,420,024 48.85% 41,543 1,432,739 48.68% 31,157 1,044,641 55.35% – – 143,063 125,895 – – 15,541 1,144,334 47.26% – 163,977 35.50% 1,943 980,390 42.97% 15,541 971,029 41.70% 50,800 1,068,275 51.87% 55,171 1,241,278 51.52% 15,541 945,547 49.85% 50,800 932,681 53.62% 396,275 15,859,474 45.52% (i) Mr Jardin resigned from the Metcash Board on 9 February 2010 and ceased to be a Key Management Personnel at this time. In accordance with his service contract, Mr Jardin will serve his notice period and remain as an employee of Metcash until 1 March 2011. He will receive his normal salary and benefits until this date. (ii) Mr Morabito was appointed CEO IGA distribution on 17 February 2010. (iii) Mr Mark Laidlaw was appointed CEO of Mitre 10 on 29 April 2010. Due to the timing of this appointment, no remuneration has been disclosed in the current period for Mr Laidlaw as he did not act as Key Management Personnel for the period. Mr Mark Burrowes, the former CEO of Mitre 10, is not considered to have acted as Key Management Personnel from the period of acquisition, 25 March 2010 to 29 April 2010 as he does not meet the definition of Key Management Personnel. (iv) Non executive remuneration varies from normal agreed fees due to prior year over payment of superannuation which has been corrected in the current period T R O P E R ' S R O T C E R I D 50 0 1 0 2 T R O P E R L A U N N A H S A C T E M (v) Superannuation amounts greater than the legislative cap of $14,461 are a result of individual election to sacrifice salary for additional superannuation payments. (vi) Amounts disclosed as compensation under Long Term Bonus and Leave represent accruals for leave and amounts accrued over the vesting period of the long-term retention plan. Cash payments were made under this plan subsequent to 30 April 2010 and are disclosed in the remuneration report. Compensation for Key Management Personnel and the five highest paid executives of the Company and the Group for the year ended 30 April 2009 (cid:0) (cid:0) (cid:0) (cid:0) (cid:0) (cid:51)(cid:33)(cid:44)(cid:33)(cid:50)(cid:57)(cid:0) (cid:33)(cid:46)(cid:36)(cid:0)(cid:38)(cid:37)(cid:37)(cid:51)(cid:0) (cid:4)(cid:0) SHORT-TERM (cid:0) (cid:0) (cid:34)(cid:47)(cid:46)(cid:53)(cid:51)(cid:0) (cid:4)(cid:0) POST EMPLOYMENT (cid:0) (cid:47)(cid:52)(cid:40)(cid:37)(cid:50)(cid:0) (cid:0) (cid:51)(cid:53)(cid:48)(cid:37)(cid:50)(cid:13)(cid:0) (cid:34)(cid:37)(cid:46)(cid:37)(cid:38)(cid:41)(cid:52)(cid:51)(cid:0) (cid:33)(cid:46)(cid:46)(cid:53)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46)(cid:0) (cid:4)(cid:0) (cid:4)(cid:0) LONG TERM (cid:0) (cid:34)(cid:47)(cid:46)(cid:53)(cid:51)(cid:0) (cid:33)(cid:46)(cid:36)(cid:0)(cid:44)(cid:37)(cid:33)(cid:54)(cid:37)(cid:0) (cid:4)(cid:0) TERMINATION BENEFITS SHARE-BASED PAYMENTS TOTAL TOTAL PERFORMANCE RELATED (%) (cid:52)(cid:37)(cid:50)(cid:45)(cid:13)(cid:0) (cid:41)(cid:46)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46)(cid:0) (cid:34)(cid:37)(cid:46)(cid:37)(cid:38)(cid:41)(cid:52)(cid:51)(cid:0) (cid:4)(cid:0) (cid:37)(cid:56)(cid:48)(cid:37)(cid:46)(cid:51)(cid:37)(cid:0) (cid:4)(cid:0) (cid:4)(cid:0) – – – – 20,421 15,480 – – – – 277,671 191,855 Directors C S dos Santos 257,250 P Barnes A Reitzer M Butler 176,375 114,125 N Hamilton 115,612 1,614,459 1,215,021 3,578 95,833 1,050,315 – – – – 10,271 10,856 – – M Jablonski 651,980 487,350 23,000 13,642 419,122 E Jankelowitz 681,666 492,081 – 13,642 419,350 L Jardin R Longes D Rubin Executives K Bean F Collins 645,921 407,350 23,000 99,701 421,176 129,687 114,125 – – 470,946 403,922 – – – 11,672 10,271 – – 99,742 214,690 501,524 321,000 14,000 13,642 212,801 P Dubbelman 461,922 378,610 23,000 49,978 214,907 A Gratwicke 403,029 302,400 B Hale 472,058 403,186 D Johnston 343,805 317,588 H Rumpler 333,024 246,400 – – – – 26,138 10,030 97,642 413,122 104,945 210,856 13,642 11,443 (cid:5) – – – – – – – – – – – – – – – – – – – 242,289 4,221,495 58.21% – – 124,396 126,468 – – 131,240 1,726,334 59.00% 131,240 1,737,979 58.88% 131,240 1,728,388 54.30% – – 141,359 124,396 – – 49,097 1,238,397 52.73% 6,137 1,069,104 49.31% 49,097 1,177,514 53.31% 60,286 801,883 46.48% 180,983 1,566,991 62.81% 49,097 1,026,291 55.22% 60,286 664,795 47.85% 7,487,508 4,974,908 86,578 707,518 3,597,812 – 1,090,992 17,945,316 52.75% Options exercised as part of remuneration for the year ended 2009 and 2010 (cid:0) (cid:54)(cid:33)(cid:44)(cid:53)(cid:37)(cid:0)(cid:47)(cid:38)(cid:0)(cid:47)(cid:48)(cid:52)(cid:41)(cid:47)(cid:46)(cid:51)(cid:0)(cid:37)(cid:56)(cid:37)(cid:50)(cid:35)(cid:41)(cid:51)(cid:37)(cid:36)(cid:0)(cid:36)(cid:53)(cid:50)(cid:41)(cid:46)(cid:39)(cid:0)(cid:52)(cid:40)(cid:37)(cid:0)(cid:57)(cid:37)(cid:33)(cid:50)(cid:0) (cid:18)(cid:16)(cid:17)(cid:16)(cid:0) (cid:4)(cid:0) (cid:18)(cid:16)(cid:16)(cid:25)(cid:0) (cid:4) A Reitzer M Jablonski E Jankelowitz L Jardin* K Bean F Collins P Dubbelman A Gratwicke B Hale D Johnston S Morabito H Rumpler – – – – – – – 1,924 669,800 – 97 – – – – – – – – – – – – – * Mr Jardin resigned from the Metcash Board on 9 February 2010 There were no options issued to Key Management Personnel during the current year (2009: 1,000,000). Refer to Note 25 Directors' and Executive Disclosures of Key Management Personnel (b) Option Holdings D I R E C T O R S ' R E P O R T 51 M E T C A S H A N N U A L R E P O R T 2 0 1 0 DIRECTORS’ REPORT CONTINUED Details of short term incentive bonus provided for in year ended 30 April 2010 (cid:0) (cid:0) 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 S Morabito F Collins P Dubbelman A Gratwicke B Hale D Johnston H Rumpler (cid:48)(cid:47)(cid:52)(cid:37)(cid:46)(cid:52)(cid:41)(cid:33)(cid:44)(cid:0)(cid:34)(cid:47)(cid:46)(cid:53)(cid:51)(cid:0) (cid:4)(cid:0) (cid:34)(cid:47)(cid:46)(cid:53)(cid:51)(cid:0)(cid:48)(cid:33)(cid:57)(cid:33)(cid:34)(cid:44)(cid:37)(cid:0) (cid:4)(cid:0) (cid:34)(cid:47)(cid:46)(cid:53)(cid:51)(cid:0)(cid:38)(cid:47)(cid:50)(cid:38)(cid:37)(cid:41)(cid:52)(cid:37)(cid:36)(cid:0) (cid:4) – – – – – – 1,334,354 978,526 355,828 – – 535,214 540,410 522,698 – – 443,593 79,327 411,281 415,795 382,500 442,785 348,779 324,000 – – 392,490 396,301 287,484 – – 325,301 58,208 219,350 189,418 280,500 324,709 255,771 226,800 – – 142,724 144,109 235,214 – – 118,292 21,119 191,931 226,377 102,000 118,076 93,008 97,200 All bonuses for the year ended 30 April 2010 were paid in June 2010. * Mr Jardin resigned from the Metcash Board on 9 February 2010 Details of short term incentive bonus provided for in year ended 30 April 2009 (cid:48)(cid:47)(cid:52)(cid:37)(cid:46)(cid:52)(cid:41)(cid:33)(cid:44)(cid:0)(cid:34)(cid:47)(cid:46)(cid:53)(cid:51)(cid:0) (cid:4)(cid:0) (cid:34)(cid:47)(cid:46)(cid:53)(cid:51)(cid:0)(cid:48)(cid:33)(cid:57)(cid:33)(cid:34)(cid:44)(cid:37)(cid:0) (cid:4)(cid:0) (cid:34)(cid:47)(cid:46)(cid:53)(cid:51)(cid:0)(cid:38)(cid:47)(cid:50)(cid:38)(cid:37)(cid:41)(cid:52)(cid:37)(cid:36)(cid:0) (cid:4) – – – – – – 1,301,809 1,215,021 86,788 – – 522,161 527,230 522,160 – – 432,773 401,250 405,653 324,000 431,985 340,272 264,000 – – 487,350 492,081 407,350 – – 403,922 321,000 378,610 302,400 403,186 317,588 246,400 – – 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. (cid:0) (cid:0) Directors C S dos Santos P Barnes A Reitzer M Butler N Hamilton M Jablonski E Jankelowitz L Jardin R Longes D Rubin Executives T R O P E R ' S R O T C E R I D 52 K Bean F Collins P Dubbelman A Gratwicke B Hale D Johnston H Rumpler 0 1 0 2 T R O P E R L A U N N A H S A C T E M Details of long term incentive bonus provided for the year ended 30 April 2010 (cid:0) (cid:0) 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 S Morabito F Collins P Dubbelman A Gratwicke B Hale D Johnston H Rumpler (cid:48)(cid:47)(cid:52)(cid:37)(cid:46)(cid:52)(cid:41)(cid:33)(cid:44)(cid:0)(cid:0)(cid:34)(cid:47)(cid:46)(cid:53)(cid:51)(cid:0) (cid:4)(cid:0) (cid:34)(cid:47)(cid:46)(cid:53)(cid:51)(cid:0)(cid:48)(cid:33)(cid:57)(cid:33)(cid:34)(cid:44)(cid:37)(cid:0) (cid:4)(cid:0) (cid:34)(cid:47)(cid:46)(cid:53)(cid:51)(cid:0)(cid:38)(cid:47)(cid:50)(cid:38)(cid:37)(cid:41)(cid:52)(cid:37)(cid:36)(cid:0) (cid:4) – – – – – – 5,000,000 4,649,000 351,000 – – 2,000,000 2,000,000 2,000,000 – – 1,859,600 1,859,600 1,859,600 – – – – – – – – – – – – – – – – 140,400 140,400 140,400 – – – – – – – 2,000,000 1,859,600 140,400 – – – – – – * Mr Jardin resigned from the Metcash Board on 9 February 2010 Bonuses under long term retention plan vesting on 30 April 2010 were paid in June 2010. No payments were due or forfeited under these plans in the year ended 30 April 2009. SHARE OPTIONS Unissued shares As at the date of this report, there were 29,861,538 unissued ordinary shares under option (30,235,024 at the reporting date). Refer to note 15 of the financial statements for further details of the options outstanding. Shares issued as a result of options During the financial year, employees and executives have exercised options to acquire 755,668 fully paid ordinary shares in Metcash Limited at a weighted average exercise price of $3.25 Since the end of the financial year, a further 301,920 options have been exercised, at a weighted average exercise price of $4.00. D I R E C T O R S ' R E P O R T 53 M E T C A S H A N N U A L R E P O R T 2 0 1 0 DIRECTORS’ REPORT CONTINUED CEO AND FINANCE DIRECTOR DECLARATION The Chief Executive Officer and Finance Director have provided a declaration that states: (a) With regard to the integrity of the financial report of Metcash Limited for the period to 30 April 2010: (i) The financial statements and associated notes comply in all material respects with the accounting standards as required by Section 296 of the Corporations Act 2001; (ii) The financial statements and associated notes give a true and fair view, in all material respects, of the financial position as at 30 April 2010 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 financial records and systems of risk management and internal compliance and control of Metcash Limited for the period ended 30 April 2010: (i) The financial records of the Company have been properly maintained in accordance with Section 286 of the Corporations Act 2001; (ii) The statements made in (a) above regarding the integrity of the financial statements are founded on a sound system of risk management and internal compliance and control which, in all material respects, implements the policies adopted by the Board of Directors; (iii) The risk management and internal compliance and control systems of the Company relating to financial reporting, compliance and operations objectives are operating efficiently and effectively, in all material respects; (iv) Subsequent to 30 April 2010, 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 2010 has been received and is included on page 101. NON-AUDIT SERVICES The following non-audit services were provided by the entity’s auditor, Ernst & Young. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Ernst & Young received or are due to receive the following amounts for the provision of non-audit services: Tax compliance Assurance-related Signed in accordance with a resolution of the Directors. $1,247,295 $311,255 Andrew Reitzer Director Sydney, 9 July 2010 T R O P E R ' S R O T C E R I D 54 0 1 0 2 T R O P E R L A U N N A H S A C T E M CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the Year ended 30 April 2010 METCASH GROUP METCASH LIMITED NOTES 4(a) 11 4(f) 4(f) 4(g) 5 Revenue Cost of sales Gross profit Distribution costs Administrative costs Share of profit of associates Specific Items Termination of derivative financial instrument Restructure of Campbells Cash and Carry branch network Finance costs Profit from continuing operations before income tax Income tax expense Net profit for the period Other comprehensive income Foreign currency translation adjustments Foreign currency hedge adjustment Income tax/(expense) on items of other comprehensive income Other comprehensive income for the period, net of tax Total comprehensive income for the period Profit for the period is attributable to: Equity holders of the parent Minority Interest Total comprehensive income for the period is attributable to: Equity holders of the parent Minority Interest Earnings per share for profit from continuing operations attributable to the ordinary equity holders of the company: – – Franked dividends per share basic earnings per share diluted earnings per share 28 28 6 The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 2010 $’m 11,608.1 (10,435.3) 1,172.8 (405.8) (350.2) 0.3 2009 $'m 11,067.5 (9,950.9) 1,116.6 (369.5) (363.5) 1.9 – (15.4) (71.7) 330.0 (99.7) 230.3 (0.6) (0.1) – (0.7) 229.6 227.6 2.7 230.3 226.9 2.7 229.6 29.74 29.69 26.00 (24.6) – (70.2) 290.7 (87.5) 203.2 (1.3) – – (1.3) 201.9 202.5 0.7 203.2 201.2 0.7 201.9 26.47 26.45 24.00 2010 $'m 376.4 – 376.4 – (2.6) – – – (174.7) 199.1 – 199.1 – – – – 199.1 199.1 – 199.1 199.1 – 199.1 – – – 2009 $'m 390.8 – 390.8 – (4.5) – – – (202.7) 183.6 – 183.6 – – – – 183.6 183.6 – 183.6 183.6 – 183.6 – – – C O N S O L I D A T E D S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E 55 M E T C A S H A N N U A L R E P O R T 2 0 1 0 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 30 April 2010 ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Assets held for sale Prepayments and other Total current assets Non current assets Trade and other receivables Investments in associates accounted for using the equity method Other financial 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 Derivative financial instruments Provisions Income tax payable Other financial liabilities Total current liabilities Non current liabilities Interest bearing loans and borrowings Provisions Other financial liabilities Total non current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Other equity Reserves Retained earnings Parent Interest Minority Interest TOTAL EQUITY N O I T I S O P L A I C N A N I F F O T N E M E T A T S D E T A D I L O S N O C METCASH GROUP METCASH LIMITED 2010 $'m 2009 $'m NOTES 2010 $'m 7 8 9 10 11 12 13 5 14 16 17 18 19 20 17 19 20 21 21 21 21 210.6 1,008.0 747.2 4.0 4.9 1,974.7 65.4 94.8 0.2 194.7 27.2 1,282.0 1,664.3 3,639.0 1,294.4 7.8 0.6 99.8 45.6 0.2 1,448.4 749.4 61.7 1.9 813.0 2,261.4 1,377.6 1,892.2 (765.9) 25.8 166.0 1,318.1 59.5 1,377.6 2009 $'m 148.6 967.7 680.5 – 5.6 – 1,314.4 – – 1,802.4 1,314.4 40.1 84.1 0.2 163.4 16.2 1,180.1 1,484.1 3,286.5 1,188.0 6.9 – 72.7 42.2 – 1,309.8 638.2 59.1 – 697.3 2,007.1 1,279.4 1,889.7 (765.9) 23.9 129.7 1,277.4 2.0 1,279.4 – – 4,616.1 – – – 4,616.1 5,930.5 – 3,194.3 – – 43.6 – 3,237.9 – – – – 3,237.9 2,692.6 2,558.2 – 19.5 114.9 2,692.6 – 2,692.6 – 1,125.3 – – – 1,125.3 – – 4,616.1 – – – 4,616.1 5,741.4 – – – – 42.0 – 42.0 3,019.7 – – 3,019.7 3,061.7 2,679.7 2,555.7 – 16.9 107.1 2,679.7 – 2,679.7 56 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 0 1 0 2 T R O P E R L A U N N A H S A C T E M STATEMENT OF CHANGES IN EQUITY Year ended 30 April 2010 METCASH GROUP CONTRIBUTED EQUITY $’m OTHER EQUITY $’m SHARE-BASED PAYMENTS $’m RETAINED EARNINGS $’m CAPITAL RESERVE $’m FOREIGN CURRENCY TRANSLATION RESERVE $’m CASH FLOW HEDGE RESERVE $'m MINORITY INTEREST $’m At 1 May 2009 Total comprehensive income 1,889.7 – (765.9) – Transactions with owners in their capacity as owners: Exercise of options Minority Interest on acquisition Share-based payment Dividends paid 2.5 – – – – – – – At 30 April 2010 1,892.2 (765.9) At 1 May 2008 Total comprehensive income 1,889.4 – (765.9) – Transactions with owners in their capacity as owners: Exercise of options Minority Interest on acquisition Share-based payment Dividends paid 0.3 – – – – – – – At 30 April 2009 1,889.7 (765.9) 17.1 – – – 2.6 – 19.7 12.6 – – – 4.5 – 17.1 129.7 227.6 – – – (191.3) 166.0 95.5 202.5 – – – (168.3) 129.7 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. 12.8 – – – – – 12.8 12.8 – – – – – (6.0) (0.6) – – – – (6.6) (4.7) (1.3) – – – – 12.8 (6.0) – (0.1) – – – – (0.1) – – – – – – – 2.0 2.7 – 55.1 – (0.3) 59.5 – 0.7 – 1.3 – – 2.0 At 1 May 2009 Total comprehensive income Transactions with owners in their capacity as owners: Share-based payment Exercise of options Dividends paid At 30 April 2010 At 1 May 2008 Total comprehensive income Transactions with owners in their capacity as owners: Share-based payment Exercise of options Dividends paid At 30 April 2009 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. METCASH LIMITED CONTRIBUTED EQUITY $'m SHARE-BASED PAYMENTS $'m RETAINED EARNINGS $'m 2,555.7 – – 2.5 – 2,558.2 2,555.4 – – 0.3 – 2,555.7 16.9 – 2.6 – – 19.5 12.4 – 4.5 – – 16.9 107.1 199.1 – – (191.3) 114.9 91.8 183.6 – – (168.3) 107.1 TOTAL EQUITY $’m 1,279.4 229.6 2.5 55.1 2.6 (191.6) 1,377.6 1,239.7 201.9 0.3 1.3 4.5 (168.3) 1,279.4 TOTAL EQUITY $'m 2,679.7 199.1 2.6 2.5 (191.3) 2,692.6 2,659.6 183.6 4.5 0.3 (168.3) 2,679.7 S T A T E M E N T O F C H A N G E S I N E Q U I T Y 57 M E T C A S H A N N U A L R E P O R T 2 0 1 0 STATEMENT OF CASH FLOWS Year ended 30 April 2010 METCASH GROUP METCASH LIMITED NOTES 2010 $'m 2009 $'m Cash flows from operating activities: Receipts from customers Receipts from related parties Payments to suppliers and employees Dividends received Interest received Finance costs Income tax paid Goods and services tax paid Net cash flows from operating activities 7 Cash flows from investing activities: Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment Payments for intangibles Proceeds from sale of retail stores Proceeds from loans repaid by other entities Loans (to)/from subsidiaries Loans (to)/from other entities Payment on acquisition of businesses Payment on acquisition of associates 27 (d) 12,440.4 – (11,848.5) 2.0 8.2 (68.4) (101.6) (137.4) 294.7 1.2 (39.3) (30.9) 0.1 16.6 – (21.0) (62.0) (0.9) 11,818.3 – (11,380.9) 1.3 9.2 (64.0) (31.0) (104.8) 248.1 7.1 (36.7) (21.3) 7.1 21.1 – (16.1) (65.8) (1.6) Net cash flows used in investing activities (136.2) (106.2) Cash flows from financing activities: Proceeds from the issue of ordinary shares Payment to terminate derivative financial instrument Payment of refinancing costs Proceeds from borrowings–other Repayments of borrowings–other Payment of dividends on ordinary shares Payment of dividends to minority interests Repayment of finance lease principal Net cash flows used in financing activities Net increase/(decrease) in cash and cash equivalents Add opening cash brought forward Effect of exchange rate changes on cash Cash and cash equivalents at end of period 21 6 7 2.5 – (6.1) 795.0 (688.7) (191.3) (0.3) (7.5) (96.4) 62.1 148.6 (0.1) 210.6 0.3 (24.6) – 550.0 (525.0) (168.3) – (6.1) (173.7) (31.8) 180.5 (0.1) 148.6 2010 $'m – 177.3 – 199.1 – (174.7) – – 201.7 – – – – – (12.9) – – – (12.9) 2.5 – – – – (191.3) – – (188.8) – – – – 2009 $'m – 207.2 – 183.6 – (202.7) – – 188.1 – – – – – (20.1) – – – (20.1) 0.3 – – – – (168.3) – – (168.0) – – – – S W O L F H S A C F O T N E M E T A T S 58 0 1 0 2 T R O P E R L A U N N A H S A C T E M NOTES TO THE FINANCIAL STATEMENTS Year ended 30 April 2010 1 CORPORATE INFORMATION The financial report of Metcash Limited (the Company) for the year ended 30 April 2010 was authorised for issue in accordance with a resolution of the Directors on 9 July 2010. 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 financial report is a general purpose financial 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 financial report has been prepared using the historical cost basis except for derivative financial instruments which have been measured at fair value. The financial 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 financial report complies with Australian Accounting Standards. The financial report also complies with International Financial Reporting Standards (IFRS). (a) Changes in Accounting Policy Since 1 May 2009 the Group has adopted the following Standards and Amendments, mandatory for annual periods beginning on or after 1 May 2009. Adoption of these Standards and Amendments did not have any effect on the financial position or performance of the Group. REFERENCE TITLE SUMMARY & IMPACT AASB 2008-1 Amendments to Australian Accounting Standard – Share-based Payments: Vesting Conditions and Cancellations AASB 8 and AASB 2007-3 Operating Segments and consequential amendments to other Australian Accounting Standards Presentation of Financial Statements and consequential amendments to other Australian Accounting Standards AASB 101 (Revised), AASB 2007-8 and AASB 2007-10 The amendments clarify the definition of ’vesting conditions’, introducing the term ’non-vesting conditions’ for conditions other than vesting conditions as specifically defined and prescribe the accounting treatment of an award that is effectively cancelled because a non-vesting condition is not satisfied. No material impact on the Group as a result of the adoption of this Standard. New standard replacing AASB 114 Segment Reporting, which adopts a management reporting approach to segment reporting. The Group concluded that the operating segments determined in accordance with AASB 8 are the same as the business segments previously identified under AASB 114. AASB 8 disclosures are shown within the accompanying notes, including the related revised comparative information. 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 reclassifications of items in the financial statements, changes in the presentation requirements for dividends and changes to the titles of the financial statements. The revised Standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented in a reconciliation of each component of equity and included in the new statement of comprehensive income. The statement of comprehensive income presents all items of recognised income and expense, either in one single statement, or in two linked statements. The Group has elected to present one statement. Borrowing costs AASB 123 (Revised) and AASB 2007-6 The new standard ensures the capitalisation of borrowing costs relating to qualifying assets and consequential amendments to other Australian Accounting Standards. AASB 2008-5 Amendments to Australian Accounting Standards arising from the Annual Improvements Project The group acquires qualifying assets and all of the provisions of this standard have been applied accordingly. The improvements project is an annual project that provides a mechanism for making non-urgent, but necessary, amendments to IFRSs. The AASB has separated the amendments into two parts: Part 1 deals with changes the AASB identified resulting in accounting changes; Part II deals with either terminology or editorial amendments that the AASB believes will have minimal impact. No material impact on the Group as a result of the adoption of this Amendment. N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 59 M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REFERENCE TITLE SUMMARY & IMPACT AASB 2008-2 AASB 2008-7 Amendments to Australian Accounting Standards – Puttable Financial Instruments and Obligations arising on Liquidation Amendments to Australian Accounting Standards – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 5, 8, 101, 107, 117, 118, 136 & 139] The amendments provide a limited exception to the definition of a liability so as to allow an entity that issues puttable financial instruments with certain specified features, to classify those instruments as equity rather than financial liabilities. No material impact on the Group as the result of the adoption of this Amendment. 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 profit or loss in an entity's separate financial statements (i.e., parent company accounts). The distinction between pre- and post-acquisition profits 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 group accounts incorporate all of the abovementioned entities and the provisions within this amendment have been applied accordingly. Any financial impact to the group is immaterial. This Standard makes amendments to the following Australian Accounting Standards: 1. AASB 5 Non-current Assets Held for Sale and Discontinued Operations; 2. AASB 8 Operating Segments; 3. AASB 101 Presentation of Financial Statements; 4. AASB 107 Statement of Cash Flows; 5. AASB 117 Leases; 6. AASB 118 Revenue; 7. AASB 136 Impairment of Assets; and 8. AASB 139 Financial Instruments: Recognition and Measurement; as a consequence of the annual improvements project. No material impact has resulted on the Group from the early adoption of the amendments. The adoption of these standards and amendments have only affected the disclosure in these financial statements. There has been no effect on profit and loss or the financial position of the entity. (b) Standards and amendments issued but not yet effective Australian Accounting Standards and Amendments 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 2010. These are outlined in the table below: S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 60 0 1 0 2 T R O P E R L A U N N A H S A C T E M 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REFERENCE TITLE SUMMARY AASB 127 (Revised), AASB 2008-3 Consolidated and Separate Financial 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 July 2009 APPLICATION DATE FOR GROUP 1 May 2010 IMPACT ON GROUP FINANCIAL REPORT The Group intends to acquire business entities in the future and outstanding non-controlling interests. All changes in the ownership interest of a subsidiary (without a change in control) are to be accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will they give rise to a gain or loss in the statement of comprehensive income. Furthermore, the revised Standard changes the accounting for losses incurred by a partially owned subsidiary as well as the loss of control of a subsidiary. The changes will affect future acquisitions, changes in, and loss of control of, subsidiaries and transactions with non-controlling interests. AASB 3 (Revised) Business Combinations AASB 2008-6 AASB 2008-8 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project Amendments to Australian Accounting Standards – Eligible Hedged Items The revised standard introduces a number of changes to the accounting for business combinations, the most significant 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. Refer to AASB 2008-5 above. 1 July 2009 Refer to AASB 127 (Revised), AASB 2008-3 Above. 1 May 2010 1 July 2009 No material impact on the Group is expected from the adoption of the Amendment. 1 May 2010 The amendment to AASB 139 clarifies how the principles underlying hedge accounting should be applied when (i) a one-sided risk in a hedged item and (ii) inflation in a financial hedged item existed or was likely to exist. 1 July 2009 No material impact on the Group is expected from the adoption of the Amendment. 1 May 2010 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 61 M E T C A S H A N N U A L R E P O R T 2 0 1 0 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) IMPACT ON GROUP FINANCIAL REPORT No material impact on the Group is expected from the adoption of the Amendment. APPLICATION DATE FOR GROUP 1 May 2010 APPLICATION DATE OF STANDARD Periods ending on or after 30 June 2009 Periods beginning on or after 1 July 2009 No material impact on the Group is expected from the adoption of the Amendment. 1 May 2010 Periods ending on or after 30 June 2009 AASB 2009-6 is a disclosure standard and as such will have no direct impact on the amounts included in the Group’s financial statements. 1 May 2010 REFERENCE TITLE SUMMARY AASB 2009-3 Amendments to Australian Accounting Standards – Embedded Derivatives AASB 2009-4 AASB 2009-6 Amendments to Australian Accounting Standards arising from the Annual Improvements Project Amendments to Australian Accounting Standards These amendments to AASB Interpretation 9 require an entity to assess whether an embedded derivative must be separated from a host contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. AASB 139 now states that if an embedded derivative cannot be reliably measured, the entire hybrid instrument must remain classified as at fair value through profit or loss. Amendments to Australian Accounting Standards AASB 2 Share-based Payment and AASB 138 Intangible Assets and AASB Interpretations 9 Reassessment of Embedded Derivatives and 16 Hedges of a Net Investment in a Foreign Operation. This Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of IFRSs by the IASB. For example, the term ‘revaluation reserve’ is changed to ‘revaluation surplus’, which already appears in some places in the Australian pronouncements. The Standard makes additional amendments as a consequence of the issuance in September 2007 of a revised AASB 101. These amendments were omitted from or incorrectly stated in AASB 2007-8 Amendments to Australian Accounting Standards arising from AASB 101. These amendments have no major impact on the requirements of the amended pronouncements. S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 62 0 1 0 2 T R O P E R L A U N N A H S A C T E M 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) IMPACT ON GROUP FINANCIAL REPORT APPLICATION DATE FOR GROUP No material impact on the Group is expected from the adoption of the Standard. Periods ending on or after 1 May 2013 APPLICATION DATE OF STANDARD Periods ending on or after 1January 2013 REFERENCE TITLE SUMMARY AASB 9 Financial Instruments The revised Standard introduces a number of changes to the accounting for financial assets, the most significant of which includes: 1. Two categories for financial assets being amortised cost or fair value. 2. Removal of the requirement to separate embedded derivatives in financial assets. 3. Strict requirements to determine which financial assets can be classified as amortised cost or fair value, Financial assets can only be classified as amortised cost if: (a) the contractual cash flows from the instrument represent principal and interest; and (b) the entity's purpose for holding the instrument is to collect the contractual cash flows. 4. 5. 6. An option for investments in equity instruments which are not held for trading to recognise fair value changes through other comprehensive income with no impairment testing and no recycling through profit or loss on derecognition. Reclassifications between amortised cost and fair value no longer permitted unless the entity's business model for holding the asset changes. Changes to the accounting and additional disclosures for equity instruments classified as fair value through other comprehensive income. Amendments to Australian Accounting Standards arising from AASB 2009. The revised Standard introduces a number of changes to the accounting for financial assets, the most significant of which are detailed above, AASB 9. Periods ending on or after 1January 2013 No material impact on the Group is expected from the adoption of the Amendment. Periods ending on or after 1 May 2013 AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and Interpretations 10 & 12 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 63 M E T C A S H A N N U A L R E P O R T 2 0 1 0 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 reporting date whilst all elements contained within the consolidated statement of comprehensive income 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 insignificant 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 classified as held for trading and available- for-sale, are measured at fair value. Gains or losses on investments held for trading are recognised in the consolidated statement of comprehensive income. For investments that are actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the relevant reporting date. NOTES TO THE FINANCIAL STATEMENTS CONTINUED 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (iii) BASIS OF CONSOLIDATION Contractual customer relationships The consolidated financial statements comprise the financial statements of Metcash Limited and its subsidiaries as at 30 April 2010. Identifying those acquired relationships with customers that meet the definition of separately identifiable intangibles that have a finite life. The financial 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 financial and operating policies so as to obtain benefits 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 financial 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 financial 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 profit after tax in the consolidated statement of comprehensive income and are presented within equity in the consolidated statement of financial position, 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 financial statements are issued under the name of the legal parent (Metcash Limited) but are a continuation of the financial statements of the deemed acquirer under the reverse acquisition rules (Metcash Trading Limited). (v) SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS (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 significant effect on the amounts recognised in the financial statements: (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 significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Impairment of goodwill The Group determines whether goodwill is impaired on an annual basis. This requires an estimation of the recoverable amount of the cash generating units to which the goodwill is allocated. The assumptions used in this estimation of the recoverable amount and the carrying amount of goodwill are discussed in note 14. Contractual customer relationships The useful life of contractual customer relationships of 25 years is based on management’s expectation of future attrition rates based on historical rates experienced. (vi) FOREIGN CURRENCY TRANSLATION Translation of foreign currency transactions Both the functional and presentation currency of Metcash Limited and its Australian subsidiaries is Australian dollars (A$). Transactions in foreign currencies are initially recorded in the functional currency at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. All exchange differences in the consolidated financial report are taken to profit or loss. Translation of financial reports of overseas operations The functional currency of the overseas subsidiaries is as follows: › › › Tasman Liquor Company Limited is New Zealand dollars. Metoz Holdings Limited is South African rand. Soetensteeg 2–61 Exploitatiemaatschappij BV is euros. S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 64 0 1 0 2 T R O P E R L A U N N A H S A C T E M (x) DERIVATIVE FINANCIAL INSTRUMENTS The Group uses derivative financial instruments (including forward currency contracts and interest rate swaps) to hedge its risks associated with foreign currency and interest rate fluctuations. Such derivative financial instruments are initially recognised at fair value on the date at which a derivative contract is entered into and are subsequently remeasured to fair value. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. The fair values of forward currency contracts are calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair values of interest rate swaps are determined using a valuation technique based on cash flows discounted to present value using current market interest rates. Any gains or losses arising from changes in the fair value of derivatives, except for those that qualify as cash flow hedges, are taken directly to profit or loss for the year. The fair value of derivative contracts are determined by reference to market values for similar instruments. For the purposes of hedge accounting, hedges are classified as: › › fair value hedges, when they hedge the exposure to changes in the fair value of recognised asset or liability; or cash flow hedges, when they hedge the exposure to variability in cash flows that is attributable either to a particular risk associated with a recognised asset or liability or to a forecast transaction. Hedges that meet the strict criteria for hedge accounting are accounted as follows: Cashflow hedges are hedges of the Group’s exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or to a forecast transaction and that could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in profit or loss. (xi) INVESTMENT IN ASSOCIATES The Group’s investments in its associates are accounted for using the equity method of accounting in the consolidated financial statements. These are the entities in which the Group has significant influence and which are neither subsidiaries nor joint ventures. The financial statements of the associates are used by the Group to apply the equity method. The investments in associates are carried in the consolidated statement of financial position 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 statement of comprehensive income reflects the Group’s share of the results of operations of the associates. Where there has been a change recognised directly in the associate’s equity, the Group recognises its share of any changes and discloses this 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: (cid:0) (cid:18)(cid:16)(cid:17)(cid:16)(cid:0) (cid:18)(cid:16)(cid:16)(cid:25) Freehold buildings: 50 years 50 years Plant and equipment: 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 inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash generating units are written down to their recoverable amount. The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognised in the consolidated statement of comprehensive income. De-recognition An item of property, plant and equipment is de-recognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated statement of comprehensive income 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 inflows 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 flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 65 M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (xv) LEASES Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. Operating leases (i) Group as a lessee Operating leases are those where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item. Operating lease payments are recognised as an expense on a straight-line basis. (ii) Group as a lessor Leases in which the Group retains substantially all the risks and benefits of the leased asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as rental income. Finance leases Leases that transfer to the Group substantially all of the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the 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 finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised lease assets are depreciated over the shorter of the 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. (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 identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. As at the acquisition date, any goodwill acquired is allocated to each of the groups of cash-generating units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the group of cash-generating units to which the goodwill relates. Where the recoverable amount of the groups of cash-generating units is less than the carrying amount, an impairment loss is recognised. When goodwill forms part of a group of cash- generating units 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 groups of cash-generating units 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 finite or indefinite. Where amortisation is charged on assets with finite lives, this expense is taken to the profit or loss on a straight-line basis. Intangible assets (excluding software development costs) created within the business are not capitalised and expenditure is charged against profits in the period in which the expenditure is incurred. Intangible assets are tested for impairment where an indicator of impairment exists. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Trade Names are recognised as intangible assets where a registered trade mark is acquired with attributable value. Trade Names are valued on a Relief from Royalty method. Trade names are considered to be indefinite life intangibles and are not amortised. Trade Name balances will be tested annually for impairment at the same time as goodwill is tested. Contractual customer relationships are recognised as intangible assets when the criteria specified in AASB 138 Intangible Assets have been met. Contractual customer relationships are assessed to have a finite life and are amortised over the asset’s useful life. The carrying value of these assets is reviewed for impairment where an indicator of impairment exists. S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 66 0 1 0 2 T R O P E R L A U N N A H S A C T E M 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 consolidated statement of comprehensive income when the asset is de-recognised. The estimated useful lives of existing finite life intangible assets are as follows: › › › Customer contracts – twenty five years; software development costs – five years; other – ten years. (xviii) TRADE AND OTHER PAYABLES Trade payables and other payables are carried at amortised cost. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. (xix) EMPLOYEE LEAVE BENEFITS (a) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months of the reporting date are recognised in provisions 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. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match as closely as possible, the estimated future cash outflows. (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 profit 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 outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is probable. The expense relating to any provision is presented in the consolidated statement of comprehensive income net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. Provisions for store lease and remediation are raised where the economic entity is committed by the requirements of the lease agreement. The future lease costs, net of any income from sub-leasing, are discounted to their net present value in determining the provision. Dividends payable are recognised when a legal or constructive obligation to pay the dividend arises, typically following approval of the dividend at a meeting of directors. (xxii) SHARE-BASED PAYMENT TRANSACTIONS The Group provides benefits to employees (including executive directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). The Group provides benefits to executive directors, senior executives and its employees in the form of the Employee Share Option Plan (ESOP). The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using a binomial model, further details of which are given in note 15. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of Metcash Limited (market conditions). The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date). The cumulative expense recognised for equity- settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the number of awards that, in the opinion of the directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share. (xxiii) REVENUE RECOGNITION Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Sale of goods Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery of the goods to the customer. Rendering of services Revenue from promotional activities is recognised when the promotional activities occur. Interest Revenue is recognised as the interest is earned. Dividends Revenue is recognised when the right to receive the payment is established. Rental income Rental income is accounted for on a straight- line basis over the lease term. Contingent rental income is recognised as income in the periods in which it is earned. Management fees Management fees are recognised on an accrual basis. (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 relevant reporting date. Deferred income tax is provided on all temporary differences at the reporting date, between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences: › › except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 67 M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Deferred income tax assets are recognised for all deductible temporary differences, carry-forward unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised: The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated statement of financial position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, is classified as operating cash flow. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (xxvi) EARNINGS PER SHARE Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net profit attributable to members of the parent, adjusted for: › › › costs of servicing equity (other than dividends); the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares, divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. (xxvii) CONTRIBUTED EQUITY Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. (xxviii) BORROWING COSTS Borrowing costs are recognised as an expense when incurred, except borrowing costs that are capitalised for acquisition of qualifying assets. › › except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the relevant reporting 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 consolidated statement of comprehensive income. (xxv) OTHER TAXES Revenues, expenses and assets are recognised net of the amount of GST except: S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 68 › when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and › receivables and payables which are stated with the amount of GST included. 0 1 0 2 T R O P E R L A U N N A H S A C T E M 3 SEGMENT INFORMATION INDENTIFICATION OF REPORTABLE SEGMENTS The Group has identified its operating segments based on the internal reports that are reviewed and used by the CEO (the chief operating decision maker) in assessing performance and in determining allocation of resources. The operating segments are identified by management based on the differences in the products and services provided. Discrete financial information about each of these operating segments is reported to the CEO on at least a monthly basis. The reportable segments are based on aggregated operating segments determined by the similarity of the products sold, as these are the sources of the Group’s major risks and have the most effect on the rates of return. SEGMENT PRODUCTS AND LOCATIONS The economic entity predominantly operates in the industries indicated: › › › › Food distribution activities comprise the distribution 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. Hardware distribution comprises the distribution of hardware supplies to retail outlets. Geographically the group operates predominately in Australia. The New Zealand operation represents less than 10% 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. MAJOR CUSTOMERS Metcash does not have a single external customer which represents greater than 10% of the entity’s revenue. BUSINESS SEGMENTS Segment Revenue Sales to external customers Inter-segment revenues Total segment revenue Segment profit before tax FOOD DISTRIBUTION 2009 $'m 2010 $'m CASH AND CARRY DISTRIBUTION 2010 $'m 2009 $'m LIQUOR DISTRIBUTION 2009 $'m 2010 $'m HARDWARE DISTRIBUTION 2010 $'m 2009 $'m CONSOLIDATED 2010 $'m 2009 $'m 7,129.9 772.6 6,681.8 809.7 1,685.3 – 1,660.4 – 2,640.6 102.1 2,639.5 109.6 7,902.5 7,491.5 1,685.3 1,660.4 2,742.7 2,749.1 346.6 315.5 28.8 33.0 36.1 33.8 61.6 – 61.6 1.5 – 11,517.4 874.7 – 10,981.7 919.3 – 12,392.1 11,901.0 – 413.0 382.3 i) Segment revenue reconciliation to the statement of comprehensive income Total segment revenue Inter-segment revenues elimination Rent Interest from other person/corporation Total revenue ii) Segment profit before tax reconciliation to the statement of comprehensive income Segment profit before tax Net Finance Costs Rent Income Rent Expense Share based payment expense Termination of derivative financial instrument Restructure of Campbells Cash and Carry branch network Amortisation of customer relationships Other Total profit from continuing operations before income tax 2010 $'m 12,392.1 (874.7) 82.5 8.2 11,608.1 2010 $'m 413.0 (63.5) 82.5 (82.5) (2.6) – (15.4) (6.5) 5.0 330.0 2009 $'m 11,901.0 (919.3) 76.6 9.2 11,067.5 2009 $'m 382.3 (61.0) 76.6 (76.6) (4.5) (24.6) – (6.2) 4.7 290.7 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 69 M E T C A S H A N N U A L R E P O R T 2 0 1 0 METCASH GROUP METCASH LIMITED 2010 $'m 2009 $'m 2010 $'m 11,517.4 82.5 8.2 – – 11,608.1 10,981.7 76.6 9.2 – – 11,067.5 (0.3) 0.1 30.2 10.0 1.3 6.5 12.1 7.3 27.5 12.9 – 6.2 10.7 7.8 90.8 83.2 382.2 31.5 9.5 2.6 4.5 15.4 – 68.3 3.4 – – 71.7 364.2 31.6 8.5 4.5 7.8 – 24.6 63.6 2.8 – 3.8 70.2 2009 $'m – – – 183.6 207.2 390.8 – – – – – – – – – – – 4.5 – – – – – – 199.1 177.3 376.4 – – – – – – – – – – – 2.6 – – – – – 174.7 – 174.7 – – 202.7 – 202.7 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 4 REVENUE AND EXPENSES (a) REVENUE Sale of goods Rent Interest from other person/corporation Dividend income Management fees (b) Other income Net (loss)/profit from disposal of property, plant and equipment (c) Other expenses Depreciation/ Amortisation of property, plant and equipment Amortisation of software and other intangibles Loss from disposal of associate Amortisation of customer relationships Impairment of trade receivables Inventories obsolescence provision (d) Operating lease rental Minimum lease payments (e) Employee benefits expense Wages and salaries Defined contribution plan expense Workers compensation costs Share-based payments Other employee benefits costs (f) Significant items Restructure of Campbells Wholesale Branch Network to close 8 warehouses. Termination of derivative financial instrument (g) Finance costs Interest expense Deferred Borrowing costs Interest expense – related party Fair value loss on derivative financial instrument S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 70 0 1 0 2 T R O P E R L A U N N A H S A C T E M 5 INCOME TAX The major components of income tax expense are: Current income tax Current income tax charge Adjustments in respect of current income tax of previous years Deferred income tax relating to origination and reversal of temporary differences Income tax expense reported in the Consolidated Statement of Comprehensive Income A reconciliation between tax expense and the product of accounting profit before income tax multiplied by the Group’s applicable income tax rate is as follows: Accounting profit before income tax At the Group’s statutory income tax rate of 30% (2009: 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 Statement of Comprehensive Income at an effective tax rate of 30% (2009: 30%) Deferred income tax Deferred income tax of the Metcash Group at 30 April relates to the following: Deferred tax liabilities Deferred expenditure Intangibles Other receivables Set off of deferred tax assets Deferred tax assets Accelerated depreciation for accounting purposes Provisions Project Costs Other Unutilised Tax Losses Set off of deferred tax liabilities Deferred tax income expense Recognised net deferred tax assets Opening Balance Charged to Income Statement Charged to Equity Acquisitions / Disposals Closing Balance METCASH GROUP METCASH LIMITED 2010 $'m 2009 $'m 2010 $'m 2009 $'m 105.1 (0.3) (5.1) 99.7 330.0 99.0 1.0 – (0.3) 84.9 (1.3) 3.9 87.5 290.7 87.2 1.6 – (1.3) – – – – 199.1 59.7 0.8 (60.5) – – – – – 183.6 55.1 1.4 (56.5) – 99.7 87.5 – – CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 2010 $'m 2009 $'m 2010 $'m 2009 $'m 1.7 2.2 (2.6) (5.7) (4.3) 3.1 0.5 (1.1) 1.3 (1.2) (0.1) (2.4) 4.3 3.1 – – (5.1) 3.9 7.3 46.6 – (53.9) – 4.4 61.1 – 12.4 3.2 (53.9) 27.2 16.2 5.1 – 5.9 27.2 5.6 41.4 2.6 (49.6) – – 50.4 3.1 12.3 – (49.6) 16.2 20.1 (3.9) – – 16.2 At 30 April 2010, there is no recognised or unrecognised deferred income tax liability (2009: $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 unrecognised capital losses in Australia of $22 million that are available indefinitely 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 modified 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. N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 71 M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 5 INCOME TAX (CONTINUED) 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 modified 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 6 DIVIDENDS PAID AND PROPOSED METCASH LIMITED 2010 $'m 1.6 METCASH GROUP METCASH LIMITED (a) Dividends paid on ordinary shares during the year (i) (ii) Final franked dividend for 2009: 14.0c (2008: 12.0c) Interim franked dividend for 2010: 11.0c (2009: 10.0c) Dividends declared (not recognised as a liability as at 30 April 2010) Franked dividends for 2010: 15.0c per share (2009: 14.0c) 2010 $'m 107.1 84.2 191.3 114.8 2009 $'m 91.8 76.5 168.3 107.1 (b) Franking credit balance The amount of franking credits available for the subsequent financial year are: – – The amount of franking credits available for future reporting period: – franking account balance as at the end of the financial year at 30% (2009: 30%) franking credits that will arise from the payment of income tax payable as at the end of the financial year amount of franking credit of dividends declared but not recognised as distribution to shareholders during the period 2010 $'m 107.1 84.2 191.3 114.8 97.0 21.8 (49.2) 69.6 2009 $'m 52.1 2009 $'m 91.8 76.5 168.3 107.1 83.6 16.3 (45.9) 54.0 (c) Tax rates The tax rate at which paid dividends have been franked is 30% (2009: 30%). Dividends declared have been franked at the rate of 30% (2009: 30%). S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 72 0 1 0 2 T R O P E R L A U N N A H S A C T E M 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 profit Adjustments for: Depreciation Amortisation Net (profit)/loss on disposal of property, plant and equipment Share of associates’ net profit Dividends received from associates Termination of derivative financial instrument Deferred borrowing costs Share based payments Net loss on disposal of associate 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 financial instruments Net cash from operating activities (b) Non-cash financing and investing activities Acquisition of assets by means of finance lease Capitalisation of debtor to investment in associate 8 TRADE AND OTHER RECEIVABLES (CURRENT) Trade receivables – Securitised (i) (ii) Trade receivables – Non-securitised (ii) Allowance for impairment loss Customer loans (iii) Marketing Debtors (iv) Other receivables (iv) Related party receivables: (v) wholly owned subsidiaries METCASH GROUP METCASH LIMITED 2010 $'m 210.6 210.6 2009 $'m 148.6 148.6 2010 $'m – – 2009 $'m – – 230.3 203.2 199.1 183.6 30.2 16.5 0.3 (0.3) 2.0 – 3.4 2.6 1.3 37.0 1.5 (38.0) (5.1) 9.7 3.3 – 294.7 3.2 7.1 689.3 198.7 (24.4) 863.6 34.8 39.4 70.2 – 1,008.0 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 1.8 735.6 106.2 (22.8) 819.0 38.6 38.0 72.1 – 967.7 – – – – – – – 2.6 – – – – – – – – – – – – – – – 4.5 – – – – – – – – 201.7 188.1 – – – – – – – – – – – – – – – – – – 1,314.4 1,314.4 1,125.3 1,125.3 (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 financial year (refer to note 17iii) trade receivables of $689.3 million (2009: $735.6 million) had been securitised as disclosed above, with $240.0 million (2009: $125.0 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 2010, 95.2% of trade receivables are required to be settled within 30 days and 4.8% 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 flows expected to be received from the relevant debtors. (iii) Customer loans receivable are current and have repayment terms of less than 12 months. $4.0 million (2009: $17.0 million) of loans are non-interest-bearing. $30.8 million (2009: $21.6) of loans have a weighted average annual interest of 8.13% (2009: 7.66%). (iv) Marketing Debtors and 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 24. 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 these receivable is considered to be recoverable in full. N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 73 M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 8 TRADE AND OTHER RECEIVABLES (CURRENT) (CONTINUED) IMPAIRED TRADE RECEIVABLES During the year ended 30 April, 2010 receivables to the value of $19.2 million (2009: $5.5 million) were considered non-recoverable and written off. As at 30 April, 2010 trade receivables with a notional value of $24.4 million (2009: $22.8 million) were provided for as impaired. Movement in the allowance for impairment loss: At 1 May Charge for the year Accounts written off as non recoverable Amounts reclassified from other payables Increase due to business acquisition Closing balance DEBTORS AGEING METCASH GROUP 2010 $'m (22.8) (12.1) 19.2 – (8.7) (24.4) As at 30 April 2010, the analysis of trade receivables for the Metcash Group that were past due but not impaired is as follows: 2010 2009 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 723.7 83.8% 661.2 80.7% 98.2 11.4% 108.3 13.2% 9.6 1.1% 12.6 1.5% 4.2 0.5% 7.3 0.9% 4.1 0.5% 7.3 0.9% 23.8 2.8% 22.3 2.7% The credit quality of the unimpaired trade receivables is good. Metcash believes that the above trade receivables will be fully recovered. CUSTOMER LOANS AGEING As at 30 April 2010, the analysis of customer loans receivable for the Metcash Group that were past due but not impaired is as follows: 2010 2009 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 72.5 78.5% 34.5 49.6% 0.5 0.5% 2.3 3.3% 0.6 0.6% 2.2 3.2% 1.5 1.6% 2.1 3.0% 0.4 0.4% 1.8 2.6% MORE THAN 120 $'m 16.9 18.4% 26.6 38.3% 2009 $'m (12.9) (10.7) 5.5 (4.7) – (22.8) TOTAL $’m 863.6 100.0% 819.0 100.0% TOTAL $’m 92.4 100.0% 69.5 100.0% In 2010, the terms of the debts of the Walters group of companies were renegotiated. As a result, $33.1m in existing loans and trade debts were consolidated and rolled over into new loans with a term of 7 years. The loans have been offered on commercial terms. The credit quality of the customer loans is good. As these amounts do not contain impaired assets Metcash believes that the above receivables will be fully recovered. OTHER RECEIVABLES AGEING As at 30 April 2010, the analysis of other receivables for the Metcash Group that were past due but not impaired is as follows: 2010 2009 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 110.4 94.0% 110.6 92.7% 4.7 4.0% 6.4 5.4% 1.1 0.9% 1.4 1.2% 0.9 0.8% 0.2 0.2% 0.0 0.0% 0.4 0.3% 0.3 0.3% 0.3 0.3% TOTAL $’m 117.4 100.0% 119.3 100.0% The credit quality of the unimpaired other receivables is good. Metcash believes that all the above other receivables will be fully recovered. S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 74 0 1 0 2 T R O P E R L A U N N A H S A C T E M 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 2010 $'m 34.8 57.6 92.4 2009 $'m 38.6 30.9 69.5 For certain loans, customers are required to provide security in the event of default. These may include bank guarantees, fixed and floating charges and security over property assets. The fair value of these securities as at 30 April 2010 was $27.1 million (2009: $25.2 million) 9 INVENTORIES Finished goods (at net realisable value) Total inventories at the lower of cost and net realisable value METCASH GROUP METCASH LIMITED 2010 $'m 747.2 747.2 2009 $'m 680.5 680.5 2010 $'m – – 2009 $'m – – Inventory write-downs recognised as an expense totalled $7.3 million (2009: $7.8 million) for the Group and $nil (2009: $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 57.6 7.8 65.4 30.9 9.2 40.1 – – – – – – (i) Customer loans receivable are non-current and have repayment terms of greater than 12 months. $7.3 million (2009: $6.0 million) of loans are non-interest bearing. $50.3 million (2009: $24.9 million) of loans have a weighted average annual interest rate of 8.99% (2009: 7.66%). Refer to Note 8 for ageing analysis and credit quality. (ii) Other receivables are non-interest-bearing and have repayment terms greater than 12 months. These receivables are all neither past due nor impaired. Refer Note 8 for ageing analysis and credit quality. FAIR VALUES The fair value and carrying values of non-current receivables of the Metcash Group are as follows: Customer loans Other receivables Total CARRYING AMOUNT 2010 $'m 57.6 7.8 65.4 CARRYING AMOUNT 2009 $'m 30.9 9.2 40.1 FAIR VALUE 2010 $'m FAIR VALUE 2009 $'m 58.8 7.8 66.6 32.0 9.2 41.2 The fair values are based on cash flows discounted at a rate reflecting current market rates adjusted for counter party credit risk. N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 75 M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 11 INVESTMENTS IN ASSOCIATES Investments in associates Interest in associates METCASH GROUP METCASH LIMITED 2010 $'m 94.8 2009 $'m 84.1 2010 $'m – OWNERSHIP INTEREST PRINCIPAL ACTIVITIES BALANCE DATE Produce Traders Trust (i) Abacus Independent Retail Property Trust Ritchies Stores Pty Ltd BMS Retail Group Pty Ltd Dramet Pty Ltd Coco’s Fresh Food Markets (i) 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 Progressive Trading Pty Ltd (Progressive) (iii) Sunshine Hardware Pty Ltd (ii) Distribution of fruit and vegetables Retail property investment 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 Grocery retailing Hardware 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 30 June 2010 % – 25.0 26.0 25.1 26.0 – 26.0 26.0 26.0 26.0 26.0 26.0 40.0 50.0 55.4 49.0 2009 $'m – 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 – (i) Metcash acquired the remaining issued units of Produce Traders Trust, effective 1 July, 2009. On 17 December, 2009, Metcash divested its interest in Coco’s Fresh Food Markets. (ii) Metcash acquired a 49% interest in Sunshine Hardware Pty Ltd via its acquisition of Mitre 10. (iii) 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 does not have the power to govern the financial and operating policies of Progressive. The following table illustrates summarised financial information relating to the Group’s investment in associates. S T N E M E T A T S L A I C N A N I F E H T O T S E T O N Share of associates’ profit: Profit/(loss) before income tax Income tax expense Profit after income tax Share of associates’ Consolidated Statement of Financial Position: Current assets Non - current assets Total Assets Current liabilities Non - current liabilities 76 Total Liabilities Net assets 0 1 0 2 T R O P E R L A U N N A H S A C T E M METCASH GROUP 2010 $'m 0.4 (0.1) 0.3 61.6 134.4 196.0 (82.7) (55.8) (138.5) 57.5 2009 $'m 2.8 (0.9) 1.9 60.0 127.4 187.4 (81.7) (50.4) (132.1) 55.3 12 OTHER FINANCIAL ASSETS (NON-CURRENT) METCASH GROUP METCASH LIMITED Investment in shares (unlisted) Investments in subsidiaries 13 PROPERTY, PLANT AND EQUIPMENT METCASH GROUP LAND AND BUILDINGS $'m PLANT AND EQUIPMENT $'m 50.6 2.9 11.9 – (0.7) 112.8 39.4 8.7 (1.4) (29.5) Year ended 30 April 2010 At 1 May 2009, net of accumulated depreciation and impairment Additions Acquisition from business combination (Refer Note 27) Disposals Depreciation charge for the year At 30 April 2010, 2010 $'m 0.2 – 0.2 TOTAL $'m 163.4 42.3 20.6 (1.4) (30.2) net of accumulated depreciation and impairment 64.7 130.0 194.7 At 1 May 2009, Cost or fair value Accumulated depreciation and impairment Net carrying amount At 30 April 2010, Cost or fair value Accumulated depreciation and impairment Net carrying amount 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, 55.2 (4.6) 50.6 70.0 (5.3) 64.7 51.4 – – (0.8) 269.6 (156.8) 112.8 261.0 (131.0) 130.0 88.6 52.0 (1.1) (26.7) 324.8 (161.4) 163.4 331.0 (136.3) 194.7 140.0 52.0 (1.1) (27.5) net of accumulated depreciation and impairment 50.6 112.8 163.4 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 55.8 (4.4) 51.4 55.2 (4.6) 50.6 236.6 (148.0) 88.6 269.6 (156.8) 112.8 292.4 (152.4) 140.0 324.8 (161.4) 163.4 2009 $'m 0.2 – 0.2 2010 $'m – 4,616.1 4,616.1 METCASH LIMITED LAND AND BUILDINGS $'m PLANT AND EQUIPMENT $'m 2009 $'m – 4,616.1 4,616.1 TOTAL $'m – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 77 M E T C A S H A N N U A L R E P O R T 2 0 1 0 The carrying value of plant and equipment held under finance leases and hire purchase contracts at 30 April 2010 is $18.8 million (2009: $17.7 million). NOTES TO THE FINANCIAL STATEMENTS CONTINUED 14 INTANGIBLE ASSETS AND GOODWILL METCASH GROUP METCASH LIMITED SOFTWARE DEVELOPMENT COSTS $'m CUSTOMER CONTRACTS $'m GOODWILL $'m TRADE NAMES $'m OTHER $'m TOTAL $'m TOTAL $'m 45.7 27.2 – (0.1) (9.7) 137.9 15.0 9.9 – (6.5) 993.6 – 39.2 – – – – 27.2 – – 2.9 – – – (0.3) 1,180.1 42.2 76.3 (0.1) (16.5) 63.1 156.3 1,032.8 27.2 2.6 1,282.0 150.2 (87.1) 63.1 183.9 (27.6) 156.3 1,032.8 – 1,032.8 27.2 – 27.2 3.0 (0.4) 2.6 1,397.1 (115.1) 1,282.0 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 1,180.1 153.3 (107.6) 45.7 159.0 (21.1) 137.9 993.6 – 993.6 – – – 3.0 (0.1) 2.9 1,308.9 (128.8) 1,180.1 – – – – – – – – – – – – – – – – – Year ended 30 April 2010 At 1 May 2009 Net carrying amount Additions Acquisition from business combination (Refer Note 27) Disposals Amortisation At 30 April 2010 Net carrying amount At 30 April 2010 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount Year ended 30 April 2009 At 1 May 2008 Net carrying amount Additions Acquisition from business combination (Refer Note 27) Amortisation At 30 April 2009 Net carrying amount At 1 May 2008 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount (a) DESCRIPTION OF THE GROUPS INTANGIBLE ASSETS & GOODWILL 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 five years. Software development costs are tested for impairment where an indicator of impairment exists. Useful lives are also estimated on an annual basis and adjustments, where applicable, are made on a prospective basis. Customer Contracts Customer contracts are acquired either through business combinations or through direct acquisition of contractual relationships. The carrying amount represents the costs less accumulated amortisation. Customer contracts are amortised over a 25 year period. The amortisation has been recognised in the statement of comprehensive income in the line item "Administrative Costs". If an impairment indication arises, the recoverable amount is estimated and an impairment loss is recognised to the extent that the recoverable amount is less than the carrying amount. No impairment loss was required to be recognised during the period. During the period $9.9 million was converted from trade receivables to customer contracts as a result of the Cornetts acquisition of Stephens Duggans Group. Trade Names Trade Names have been acquired through business combinations and are carried at cost less any impairment losses. These intangible assets have been determined to have an indefinite useful life. Trade marks will be subjected to impairment testing on an annual basis or whenever there is an indication of impairment. Due to the timing of the acquisition of these assets in the current year, no impairment test has been carried out. Other The company entered into an Alliance Agreement with Lenards Pty Ltd in 2009 to offer customers the opportunity to purchase products under Lenards Franchise. The agreement fee will be amortised over 10 years, straight line. The intangible is carried at cost less accumulated amortisation. S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 78 0 1 0 2 T R O P E R L A U N N A H S A C T E M 14 INTANGIBLE ASSETS AND GOODWILL (CONTINUED) (b) IMPAIRMENT TESTS FOR GOODWILL AND INTANGIBLES WITH INDEFINITE USEFUL LIVES (i) Description of Cash Generating Units Goodwill acquired through business combinations have been allocated to the lowest level within the entity at which the goodwill is monitored by management, being the four business pillars (IGA>D, CCC, ALM and Mitre 10), which are reportable segments. Under AIFRS, goodwill and intangibles with indefinite 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 February 2010 for the 3 existing pillars at that date. The group of cash generating units (CGU) used for impairment testing are as follows: IGA Distribution, Campbells Wholesale and Australian Liquor Marketers. The recoverable amount of the group of CGUs has been determined based on fair value less costs to sell calculation using cash flow projections based on financial projections approved by senior management covering a five year period. (ii) Key Assumptions used in valuations The following describes the key assumptions on which management has based its cash flow projection: Budgeted gross margins — These have been estimated based on utilisation of existing assets and on the average gross margins achieved immediately before the budgeted year, increased for expected efficiency improvements. Discount Rates — The weighted average cost of capital for the Group based on risk free rates of return, the company’s risk profile relative to the market, the marginal cost of borrowing for the company, its average level of gearing and a market risk premium. Future growth — Driven by population growth, estimated food inflation and changes in market share. The pre-tax discount rate applied to cash flow projections is 12.67% (2009: 12.26%) and cash flows beyond the five year period are extrapolated using a 2.5 % growth rate (2009: 2.5%) which is based on the historical population and applicable food inflation and liquor growth rates for each group of CGUs. (iii) Sensitivity to changes in assumptions The table below summarises the Goodwill attributed to each group of CGUs and potential impairment trigger point at the impairment testing date of February 2010: GROUP OF CGUs IGA Distribution Campbells Wholesale Australian Liquor Marketers GOODWILL $'m DISCOUNT RATE AT WHICH IMPAIRMENT IS TRIGGERED % 856.9 32.9 89.1 * 14.38% 13.88% * Management believes 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. (iv) Trade Names Valuation Trade Names were valued on acquisition of the Mitre 10 business and represent the value of the various Trade Marks registered to the Mitre 10 Group of companies. At the date of acquisition, the Trade Names were valued on a Relief from Royalty basis. The following represent the key assumptions used: Royalty Rate – An estimate based on similar royalty rates for similar types of franchising store formats in a similar industry from a global analysis. Budgeted gross margins – These have been estimated based on utilisation of existing assets and on the average gross margins achieved immediately before the budgeted year, increased for expected efficiency improvements. Discount Rates – The weighted average cost of capital for the Mitre 10 Group based on risk free rates of return, the company’s risk profile relative to the market, the marginal cost of borrowing for the company, its average level of gearing and a market risk premium. Future growth – Driven by population growth, estimated inflation and changes in market share. The trade name valuation was completed as at 25 March 2010. As such, Metcash does not consider that any indicators of impairment have arisen between the date of valuation and balance date. The Trade Names will be subject to impairment testing in the 2011 financial year. N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 79 M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 15 SHARE-BASED PAYMENTS SHARE-BASED PAYMENT PLANS During the year no options were issued to Executive Directors (2009: 1,000,000 options), as disclosed in note 25 (b). The following table illustrates the number of options and exercise prices and movements during the year ended 30 April 2010 and 30 April 2009: Outstanding at the beginning of the year Reinstated during the year Granted during the year Exercised during the year Expired during the year Outstanding at the end of the year 2010 NUMBER 2010 EXERCISE PRICE 2009 NUMBER 2009 EXERCISE PRICE 32,202,323 8,920 – – (340,000) (415,668) (1,220,551) 30,235,024 – Various – – 2.430 3.925 Various – 13,523,106 21,325 21,091,806 (38,000) – (57,770) (2,338,144) 32,202,323 – Various 4.267 1.870 2.430 3.925 Various – The outstanding balance as at 30 April 2010 is represented by: › › › 3,800,000 options over ordinary shares with an exercise price of $4.0134 exercisable until 2 September 2011. 7,901,203 options over ordinary shares with an exercise price of $3.9251 exercisable until 2 September 2011. 18,533,821 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 nil (2009: $0.88). The fair value of the equity-settled share options granted is estimated at the date of the grant using a binomial model taking into account the terms and conditions upon which the options were granted.The following table lists the inputs to the model in the year ending 30 April 2010 and 30 April 2009: Dividend yield (%) Expected Volatility (%) Risk free rate (%) Expected Life of Options (years) Option exercise price ($) Weighted average share price ($) 2010 – – – – – – 2009 5.0 23.9 6.7 6.0 4.3 4.2 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: › › › create a joint purpose of success between Metcash and its employees; involve employees directly in the outcomes achieved by Metcash; and 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: › › › 60% of the options issued to a participant become exercisable from the third anniversary of the grant date; a further 20% become exercisable from the fourth anniversary of the grant date; and the remaining 20% become exercisable from the fifth 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. An option may be exercised immediately in the event of: › › › any party becoming entitled to acquire shares by way of a compulsory acquisition; or 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. Exercise prices or option holdings will be pro-rated in the event of a bonus issue, rights issue or reorganization of the share capital of the Company. S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 80 0 1 0 2 T R O P E R L A U N N A H S A C T E M 2010 $'m 2009 $'m – – – – – – – – – – – – 2009 $'m – – – – – – 3,019.7 3,019.7 16 TRADE AND OTHER PAYABLES (CURRENT) METCASH GROUP METCASH LIMITED Trade payables Accrued GST/WET Accrued marketing expenses Accrued purchases and payroll expenses Other payables 2010 $'m 1,110.1 42.2 49.3 78.9 13.9 1,294.4 2009 $'m 989.0 50.2 47.2 83.9 17.7 1,188.0 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 Loans from subsidiaries (iv) Finance lease obligation (i) Non-current Finance lease obligation (i) Bank loans (ii) Debt securitisation (iii) Loans from subsidiaries (iv) METCASH GROUP METCASH LIMITED 2010 $'m – 7.8 7.8 16.4 493.0 240.0 – 749.4 2009 $'m – 6.9 6.9 17.3 495.9 125.0 – 638.2 2010 $'m 3,194.3 – 3,194.3 – – – – – (i) Finance leases have an average lease term of five 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 8.71% (2009: 8.14%). 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, which expires 12 May 2012. The bank loans are covered by certain financial undertakings as follows: The bank facility has three covenants that the Group must comply with, being a fixed 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 fixed figure representing the Group share capital and reserves). 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. (iii) The securitisation finance has no finite term and is not expected to be repaid in the ordinary course of business in the coming financial 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) Post year end the loans from subsidiaries were renegoiated and are repayable on 12 October 2015, (from 12 October 2010) and attract a variable interest rate. The interest rate at 30 April 2010 was 7.74% (2009: 3.91%). The carrying amount of the Group’s current and non-current borrowings approximate their fair value. (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 22. N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 81 M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 18 DERIVATIVE FINANCIAL INSTRUMENTS Current Foreign currency forward contracts (i) METCASH GROUP METCASH LIMITED 2010 $'m 0.6 0.6 2009 $'m – – 2010 $'m – – 2009 $'m – – (i) Derivatives that are designated and effective as hedging instruments are carried at fair value. 19 PROVISIONS Current Employee entitlements Rental subsidy (i) Restructuring (ii) Other Non-current Employee entitlements Rental subsidy (i) Other Total METCASH GROUP METCASH LIMITED 2010 $'m 77.5 6.8 14.8 0.7 99.8 30.0 31.7 – 61.7 161.5 2009 $'m 60.7 9.3 2.3 0.4 72.7 25.8 31.0 2.3 59.1 131.8 2010 $'m 2009 $'m – – – – – – – – – – OTHER $'m 2.7 0.8 (2.4) (0.4) 0.7 – – – – – – – – – – TOTAL $'m 45.3 17.9 (8.0) (1.2) 54.0 (a) MOVEMENTS IN PROVISIONS (OTHER THAN EMPLOYEE ENTITLEMENTS) 1 May 2009 Arising during the year Utilised Unused amounts released 30 April 2010 METCASH GROUP RENTAL SUBSIDY $'m RESTRUCTURING $'m 40.3 1.7 (3.5) – 38.5 2.3 15.4 (2.1) (0.8) 14.8 Other provisions contain a number of insignificant balances, the costs of which are expected to be incurred within the next financial year. (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 flow differentials are then discounted back to their present value using a discount rate for an equivalent security of similar terms. (ii) Restructure provision Restructure of Campbells Wholesale Branch Network to close 8 warehouses. Costs provided include employee termination costs, inventory markdowns, relocation costs and exit costs for leased premises. S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 82 0 1 0 2 T R O P E R L A U N N A H S A C T E M 20 OTHER FINANCIAL LIABILITIES Current Lease incentives Non-current Lease incentives 21 CONTRIBUTED EQUITY AND RESERVES (a) Ordinary shares: Issued and fully paid Movements in ordinary shares on issue At 1 May Issued during the year: – 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 – Exercise of employee options – 415,668 ordinary shares at 392.5 cents per share – Exercise of employee options – 340,000 ordinary shares at 243.0 cents per share At 30 April Movements in ordinary shares on issue At 1 May Issued during the year: – 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 – Exercise of employee options – 415,668 ordinary shares at 392.5 cents per share – Exercise of employee options – 340,000 ordinary shares at 243.0 cents per share At 30 April METCASH GROUP METCASH LIMITED 2010 $'m 0.2 0.2 1.9 1.9 2009 $'m 2010 $'m 2009 $'m – – – – – – – – – – – – METCASH GROUP METCASH LIMITED 2010 2009 2010 2009 1,892.2 1,892.2 1,889.7 1,889.7 2,558.2 2,558.2 2,555.7 2,555.7 METCASH GROUP 2010 2009 NUMBER OF SHARES $'m NUMBER OF SHARES $'m 764,888,363 1,889.7 764,792,593 1,889.4 – – 415,668 340,000 – – 1.7 0.8 38,000 57,770 – – 0.1 0.2 – – 765,644,031 1,892.2 764,888,363 1,889.7 METCASH LIMITED 2010 2009 NUMBER OF SHARES $'m NUMBER OF SHARES $'m 764,888,363 2,555.7 764,792,593 2,555.4 – – 415,668 340,000 – – 1.7 0.8 38,000 57,770 – – 0.1 0.2 – – 765,644,031 2,558.2 764,888,363 2,555.7 (a) Fully paid ordinary shares carry one vote per share and carry the right to dividends. N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 83 M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 21 CONTRIBUTED EQUITY AND RESERVES (CONTINUED) RESERVES At 1 May 2008 Currency translation differences Share-based payments At 30 April 2009 Currency translation differences Share-based payments Movement in fair value of derivatives At 30 April 2010 METCASH GROUP SHARE- BASED PAYMENTS $'m CAPITAL PROFITS $'m CASH FLOW HEDGE RESERVE $'m FOREIGN CURRENCY TRANSLATION $'m 12.6 – 4.5 17.1 – 2.6 – 19.7 12.8 – – 12.8 – – – 12.8 – – – – – – (0.1) (0.1) (4.7) (1.3) – (6.0) (0.6) – – (6.6) METCASH LIMITED SHARE- BASED PAYMENTS $'m TOTAL $'m 12.4 – 4.5 16.9 – 2.6 – 19.5 12.4 – 4.5 16.9 – 2.6 – 19.5 TOTAL $'m 20.7 (1.3) 4.5 23.9 (0.6) 2.6 (0.1) 25.8 NATURE AND PURPOSE OF RESERVES Share-based payments reserve This reserve is used to record the value of equity benefits provided to employees and directors as part of their remuneration. Refer to note 15 for further details of these plans. Capital profits reserve The capital profits reserve is used to accumulate realised capital profits. The reserve can be used to pay dividends or issue bonus shares. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. It is also used to record the effect of hedging net investments in foreign operations. Cash flow hedge reserve This reserve records the portion of the unrealised gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge. RETAINED EARNINGS At 1 May Profit/(loss) for the period Dividends At 30 April Other Equity At 30 April NATURE AND PURPOSE METCASH GROUP METCASH LIMITED 2010 2009 2010 129.7 227.6 (191.3) 166.0 95.5 202.5 (168.3) 129.7 107.1 199.1 (191.3) 114.9 2009 91.8 183.6 (168.3) 107.1 (765.9) (765.9) – – The other equity account is used to record the reverse acquisition adjustment on application of AASB 3 Business Combinations in 2005. S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 84 0 1 0 2 T R O P E R L A U N N A H S A C T E M 22 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (GROUP AND COMPANY) The Group’s principal financial instruments comprise bank loans and overdrafts, finance and operating leases, cash and short-term deposits and derivatives. The main purpose of these instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and payables, which arise directly from its operations. The Group manages its exposure to key financial risks including interest rate and credit risks in accordance with the Group’s financial risk management policy. The objective of the policy is to support delivery of the Group’s financial targets while protecting future financial security. The Group enters into a small number of derivative transactions from time to time principally to manage interest rate and foreign currency risks arising from the Group’s operations and its sources of finance. The main risks arising from the Group’s financial instruments are cash flow interest rate risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are detailed below. Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial instrument, financial liability and equity instrument are disclosed in Note 2 Summary of Significant Accounting Policies. 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 floating interest rate. The Group enters into interest rate derivatives designated to limit the Group’s exposure to volatility in interest payments from time to time. As at 30 April 2010, the Group has no interest rate derivative financial instruments. On 9 June 2010, the Group entered into a number of Interest Rate Swap contracts with various major Australian Banks. The principal hedged is $300,000,000 with a weighted hedge maturity of 2 years and a weighted average interest rate of 5.059%. The Group considers that these derivatives will be effective hedges in accordance with AASB 139 Financial Instruments: Recognition and Measurement and will be accounted for as a cash flow hedge in accordance with the Company's stated accounting policies. The consolidated entity exposure to interest rate risk and the effective rates of financial assets and liabilities, both recognised and unrecognised at balance date, are as follows: FINANCIAL INSTRUMENTS OVER 1 TO 5 YEARS MORE THAN 5 YEARS TOTAL CARRYING AMOUNT PER THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION 2010 $'m 2009 $'m 2010 $'m 2009 $'m 2010 $'m 2009 $'m WEIGHTED AVERAGE EFFECTIVE INTEREST RATE 2009 % 2010 % 1 YEAR OR LESS 2010 $'m 2009 $'m (i) Financial assets Fixed rate Trade and other receivables Floating rate Cash Total financial assets (ii) Financial liabilities Fixed rate Finance lease liability* Weighted average interest rate Floating rate Bank and other loans** Non-interest bearing Trade and other payables Total financial liabilities 30.8 21.6 33.1 30.9 17.2 210.6 241.4 148.6 170.2 – 33.1 – 30.9 7.8 6.9 8.79% 8.19% 16.4 8.67% 17.1 8.13% – – 733.0 620.9 1,294.4 1,188.0 – – 1,302.2 1,194.9 749.4 638.0 – – – – – – – – – 0.2 81.1 52.5 8.66 7.66 210.6 291.7 148.6 201.1 4.25 3.00 – – 24.2 – 24.2 – 8.71 8.14 – – – 733.0 620.9 6.45 4.02 0.00% 6.42% – 0.2 1,294.4 1,188.0 2,051.6 1,833.1 – – – – 85 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S * Finance leases have an average lease term of five 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 8.71% (2009: 8.14%). Secured lease liabilities are secured by a charge over the leased asset. ** Refer to Note 17 for details of Bank and Other Loans At the reporting date, the carrying value of all financial assets and liabilities approximate their net fair values. The other financial instruments of the Group and parent that are not included in the above tables are non-interest-bearing and are therefore not subject to interest rate risk. M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 22 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Sensitivity Analysis The Group constantly analyses its interest rate exposure. Within this analysis, consideration is given to potential renewal of existing positions, alternative financing, alternative hedging positions and the mix of fixed and floating interest rates. The table below shows the effect on post tax profit and other comprehensive income 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. If interest rates were to increase by 0.50% (50 basis points) profit after tax (PAT) would increase/(decrease) by: If interest rates were to decrease by 0.25% (25 basis points) profit after tax (PAT) would increase/(decrease) by: METCASH GROUP PROFIT AFTER TAX HIGHER/(LOWER) METCASH LIMITED PROFIT AFTER TAX HIGHER/(LOWER) 2010 $'m (3.7) 1.9 2009 $'m (3.1) 1.6 2010 $'m – – 2009 M – – The movements in profit are due to higher/lower interest costs from variable rate banking and other loans. 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 flows and liquidity on a daily basis. The Group has two independent sources of debt funding of which at 30 April 2010, 60.9% have been utilised. Remaining contractual maturities Remaining contractual liabilities consist of non-interest bearing liabilities amounting to $1,294.4 million for the Group and nil for the Parent and are due one year or less. Maturity analysis of financial assets and liabilities based on contracted date The risk implied from the values shown in the table below reflects a balanced view of cash inflows and outflows. Leasing obligations, trade payables and other financial liabilities mainly originate from the financing 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 reflects the contracted date of settlement of financial assets and liabilities. This is also the expected date of settlement. METCASH GROUP 1 YEAR OR LESS $'m 1-5 YEARS $'m MORE THAN 5 YEARS $'m 210.6 1,008.0 – 1,218.6 1,294.4 9.6 47.6 – 1,351.6 – 65.4 – 65.4 – 18.6 792.5 – 811.1 – – – – – – – – – METCASH LIMITED 1 YEAR OR LESS $'m 1-5 YEARS $'m MORE THAN 5 YEARS $'m TOTAL $'m – – – – – – – 3,301.5 3,301.5 – – – – – – – – – – – – – – – – – – – – – – – – – 3,301.5 3,301.5 TOTAL $'m 210.6 1,073.4 – 1,284.0 1,294.4 28.2 840.1 – 2,162.7 YEAR ENDED 30 APRIL 2010 Financial assets Cash and cash equivalents Trade and other receivables Derivative financial instruments Financial liabilities Trade and other payables Finance lease liability Bank and other loans Loans from subsidiaries S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 86 0 1 0 2 T R O P E R L A U N N A H S A C T E M 22 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) YEAR ENDED 30 APRIL 2009 Financial assets Cash and cash equivalents Trade and other receivables Derivative financial instruments Financial liabilities Trade and other payables Finance lease liability Bank and other loans Loans from subsidiaries METCASH GROUP 1 YEAR OR LESS $'m 1–5 YEARS $'m MORE THAN 5 YEARS $'m 148.6 967.7 – 1,116.3 1,188.0 8.6 41.4 – 1,238.0 – 28.1 – 28.1 – 18.0 640.5 – 658.5 – 2.9 – 2.9 – 1.8 – – 1.8 TOTAL $'m 148.6 998.7 – 1,147.3 1,188.0 28.4 681.9 – 1,898.3 METCASH LIMITED 1 YEAR OR LESS $'m 1–5 YEARS $'m MORE THAN 5 YEARS $'m TOTAL $'m – – – – – – – – – – – – – – – – – – – – – – – – – 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 2015, at which point the amount due will be $3,301.5 million The Group monitors forecasts of liquidity reserves on the basis of expected cash flow. 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 DEBT USAGE $'m 700.0 400.0 150.0 1,250.0 – 1,250.0 500.0 240.0 21.9 761.9 – 761.9 CASH $'m – – – – 210.6 210.6 * During the period the senior facility loans were extended for an additional three years, which expires 12 May 2012. Derivative financial liabilities The table below details the liquidity risk arising from derivative liabilities held by the Group at the reporting date METCASH GROUP Year ended 30 April 2010 Derivative liabilities – net settled Derivative liabilities – gross settled – Inflows – Outflows Net maturity 1–6 MTHS $'m 6–12 MTHS $'m 1–5 YEARS $'m >5 YEARS $'m – 8.9 – – 8.9 – 1.3 – – 1.3 – – – – – – – – – – FACILITY AVAILABLE $'m 200.0 160.0 128.1 488.1 210.6 698.7 TOTAL $'m – 10.2 – – 10.2 The Group held no derivatives at 30 April 2009. The Company held no derivatives at either 30 April 2009 or 30 April 2010. Gross settled derivatives comprise forward exchange contracts that are used to hedge anticipated purchase commitments. CREDIT RISK The Group trades with a large number of customers across the business operations and it is Group policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, where a loan has been provided, the Group will seek to take security over certain assets of the customer wherever possible. 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 6 months and where necessary appropriate provisions are established. As identified in note 8 (Trade and Other Receivables), the current level of impairment provision represents less than 2.8% of the receivables balance, indicating that the balances are actively and effectively managed. There are no significant concentrations of credit risk within the Group. N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 87 M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 22 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) FOREIGN CURRENCY RISK The Group's exposure to foreign exchange fluctuations is minimal. The Operations denominated in New Zealand dollars represent less than 5% of total sales and total profit after tax. In addition, the Group undertakes some foreign currency transactions in the purchases of goods and services. The Group enters into forward foreign exchange contracts and foreign currency options to manage the risk associated with anticipated purchase commitments denominated in foreign currencies. The amount of foreign exchange cover is based on anticipated future purchases in light of current conditions in foreign markets, commitments from customers and experience. 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 sufficient Capital and is generating sufficient cash flow to pay dividends as and when they fall due. The plan is able to be reinstituted at any time. The Group provides benefits to employees (including executive directors) of the Group in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). The Group provides benefits to executive directors, senior executives and its employees in the form of the Employee Share Option Plan (ESOP). Details are disclosed in note15. Management and the Board remain focused on seeking growth opportunities, both organic and via acquisition. The Board and Management set out to achieve and maintain Consolidated Statement of Financial Position ratios that would satisfy an investment grade rating. Certain Consolidated Statement of Financial Position ratios are imposed by the Syndicated Debt Facility. The nature and calculation of these ratios are not disclosed due to commercial sensitivity. Management monitors capital through the gearing ratio (debt / total capital). The gearing ratios at 30 April 2010 and 2009 were 35.5% and 33.5% respectively. This is within an acceptable target range. FAIR VALUE The Group uses various methods in estimating the fair value of a financial instrument. The different methods have been defined as follows: * Level 1: the fair value is calculated using quoted prices in active markets. * Level 2: the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices ) or indirectly (derived from prices) * Level 3: the fair value is estimated using inputs for the asset or liability that are not based on observable market data. The table below analyses financial instruments carried at fair value, by valuation method: YEAR ENDED 30 APRIL 2010 Available for sale financial assets Financial assets designated at fair value through profit or loss Financial assets held for trading Derivative financial assets Derivative financial liabilities LEVEL 1 $'m LEVEL 2 $'m LEVEL 3 $'m – – – – – – – – – – 0.6 0.6 – – – – – – TOTAL $'m – – – – 0.6 0.6 The Directors consider that the carrying amount of the financial assets and liabilities recorded in the financial statements approximates their fair value as at the reporting date. S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 88 0 1 0 2 T R O P E R L A U N N A H S A C T E M 23 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 five years and an implicit interest rate of 8.67%. Contingent rentals are payable to reflect movements in the Consumer Price Index on certain leases and to reflect the turnover of certain stores occupying the land and buildings. Future minimum rentals payable under non–cancellable operating leases as at 30 April are as follows: METCASH GROUP METCASH LIMITED Within 1 year After 1 year but not more than 5 years More than 5 years 2010 $'m 148.7 481.2 449.9 2009 $'m 138.1 455.6 447.8 Aggregate lease expenditure contracted for at reporting date 1,079.8 1,041.5 2010 $'m – – – – 2009 $'m – – – – (b) OPERATING LEASE RECEIVABLES Certain properties under operating lease have been sublet to third parties. These leases have an average lease term of five years and an implicit interest rate of 8.67%. 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 2010 $'m 58.5 201.3 233.1 492.9 2009 $'m 62.3 199.2 264.0 525.5 2010 $'m – – – – 2009 $'m – – – – (c) FINANCE LEASE COMMITMENTS The Group has finance leases for various items of vehicles and equipment. The weighted average interest rate impact in the leases is 8.71% (2009: 8.14%). The parent company has no finance lease commitments. Future minimum lease payments under finance leases together with the present value of the net minimum lease payments 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 finance charges Present value of minimum lease payments FUTURE MINIMUM LEASE PAYMENTS PRESENT VALUE OF MINIMUM LEASE PAYMENTS 2010 $'m 9.6 18.6 – 28.2 (4.0) 24.2 2009 $'m 8.6 18.0 1.8 28.4 (4.2) 24.2 2010 $'m 7.8 16.4 – 24.2 – 24.2 2009 $'m 8.7 15.3 0.2 24.2 – 24.2 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 89 M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 24 RELATED PARTY DISCLOSURE (a) SUBSIDIARIES The consolidated financial statements include the financial statements of Metcash Limited and the subsidiaries listed in the following table. NAME PERCENTAGE OF EQUITY INTEREST HELD BY THE CONSOLIDATED ENTITY 2009 % 2010 % NAME COUNTRY OF INCORPORATION PERCENTAGE OF EQUITY INTEREST HELD BY THE CONSOLIDATED ENTITY 2009 % 2010 % COUNTRY OF INCORPORATION 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 Pacific 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. 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 Garden Fresh Produce Pty Ltd Garden Fresh Produce Trust Gawler Supermarkets Pty. Ltd. Global Liquor Wholesalers Pty. Limited (formerly Cotswrap Pty Limited) GP New Co Pty Ltd Green Triangle Meatworks Pty Limited Harvest Liquor Pty. Ltd. IGA Community Chest Limited (ii) 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 IGA Pacific Pty Limited IGA Retail Network Limited (ii) IGA Retail Services Pty Limited Independent Brands Australia Pty Limited (ii) Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – – 100 100 100 100 100 100 100 100 100 100 100 74 100 100 100 100 Jewel Food Stores Pty. Ltd. Jewel Superannuation Fund Pty Ltd Jorgensens Confectionery Pty. Limited Keithara Pty. Ltd. Knoxfield 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. Mittenmet Limited * 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 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. Soetensteeg 2 61 Exploitatiemaatschappij BV 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 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 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Netherlands Australia Australia Australia Australia New Zealand Australia Australia Australia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50.1 100 100 100 51 51 100 100 100 100 100 100 100 100 100 100 100 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 – 100 100 100 51 51 100 100 100 100 100 100 100 100 100 100 100 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 90 0 1 0 2 T R O P E R L A U N N A H S A C T E M 24 RELATED PARTY DISCLOSURE (CONTINUED) (b) ULTIMATE PARENT Metcash Limited is the ultimate parent entity. * Mittenmet Limited The consolidated financial statements include the financial statements of Mittenmet Limited and the subsidiaries listed in the following table. PERCENTAGE OF EQUITY INTEREST HELD BY MITTENMET NAME ACN 001 259 570 Pty Ltd (In Liquidation) ACN 007 702 721 (SA) Ltd (In Liquidation) ACN 008 698 093 (WA) Ltd Ltd Anzam (Aust.) Pty Ltd Australian Hardware Support Services Pty Ltd Chelsea Heights Operations Pty Limited DIY Superannuation Pty Ltd Handyman Stores Pty Ltd Hardware Property Trust Himaco Pty Ltd Lilydale Operations Pty Limited Mega Property Management Pty Ltd Mitre 10 Limited Mitre 10 Australia Ltd Mitre 10 Mega Pty Ltd Modbury Operations Pty Ltd (In Liquidation) National Retail Support Services Pty Ltd Ringwood Operations Pty Ltd (In Liquidation) South Coast Operations Pty Ltd South West Operations Pty Ltd Sydney Importing Co Limited Timber and Hardware Exchange Pty Ltd WA Hardware Services 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 2010 % 100 100 99.44 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 97.65 52.00 100 2009 % – – – – – – – – – – – – – – – – – – – – – – – N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 91 M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 24 RELATED PARTY DISCLOSURE (CONTINUED) (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 financial 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 financial reporting relief. The effect of the deed is that Metcash Limited has guaranteed to pay any deficiency in the event of winding up of these controlled entities. These controlled entities have also given similar guarantees in the event that Metcash Limited is wound up. The Statement of Comprehensive Income and Statement of Financial Position of the entities that are members of the ‘Closed Group’ are as follows: (i) Statement of Comprehensive Income Profit before income tax Income tax expense Profit after tax Net profit for the financial year Retained profits at the beginning of the financial year Dividends provided for or paid Retained profits at the end of the financial year (ii) Statement of Financial Position ASSETS Current Assets Cash and cash equivalents Trade and other receivables Inventories 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 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 profits TOTAL EQUITY S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 92 0 1 0 2 T R O P E R L A U N N A H S A C T E M CLOSED GROUP 2010 $'m 2009 $'m 320.4 (98.8) 221.6 221.6 131.2 (191.3) 161.5 177.3 752.3 755.3 4.9 293.4 (89.4) 204.0 204.0 95.5 (168.3) 131.2 135.3 819.5 680.5 5.6 1,689.8 1,640.9 65.4 2,450.4 127.0 14.3 1,036.8 3,693.9 5,383.7 1,078.5 5.1 43.5 32.8 1,159.9 2,886.5 17.2 2,903.7 4,063.6 1,320.1 1,892.2 (765.9) 32.3 161.5 1,320.1 40.1 2,439.7 104.8 14.3 1,017.2 3,616.1 5,257.0 1,053.3 5.0 42.0 26.7 1,127.0 2,826.8 18.5 2,845.3 3,972.3 1,284.7 1,889.7 (765.9) 29.7 131.2 1,284.7 24 RELATED PARTY DISCLOSURE (CONTINUED) (d) TRANSACTIONS WITH RELATED PARTIES RELATED PARTY CONSOLIDATED Associates Sales to Associates Dividends received from associates 2010 2009 2010 2009 SALES TO RELATED PARTIES $'m PURCHASES FROM RELATED PARTIES $'m OTHER TRANSACTIONS WITH RELATED PARTIES $'m 1,224.5 1,188.3 – – – – – – – – 2.0 1.3 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. The total level of purchases from both companies is less than 0.4% of Metcash’s annual purchases and is not considered material. Parent Associates There were no transactions between the parent and its associates during the year (2009: nil). SALES TO RELATED PARTIES $'m PURCHASES FROM RELATED PARTIES $'m OTHER TRANSACTIONS WITH RELATED PARTIES $'m RELATED PARTY Subsidiaries Dividend received 2010 2009 2010 Current tax payable/ (receivable) assumed from wholly owned consolidated entities 2009 Management fees received Interest accrued 2010 2009 2010 2009 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. (e) AMOUNTS DUE FROM OR PAYABLE TO RELATED PARTIES RELATED PARTY CONSOLIDATED Associates Trade Accounts Receivable Loans Receivable PARENT Subsidiaries Loans receivable Loans Payable – – – – – – – – – – – – – – – – 199.1 183.6 43.6 42.0 177.3 207.2 174.7 202.7 2010 $'m 2009 $'m 105.9 46.2 127.1 23.5 1,314.4 3,194.3 1,125.3 3,019.7 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 2010, the Group has not made any allowance for impairment loss relating to trade accounts receivable or loans due from associates. N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 93 M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 25 DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (a) DETAILS OF KEY MANAGEMENT PERSONNEL DIRECTORS Carlos S dos Santos Peter L Barnes Andrew Reitzer Michael R Butler Neil D Hamilton Michael R Jablonski Edwin M Jankelowitz Lou Jardin* Richard A Longes V Dudley Rubin Non-executive Chairman Non-executive Deputy Chairman Chief Executive Officer Non-executive Director Non-executive Director Group Merchandise Director Finance Director Former CEO IGA Distribution Non-executive Director Non-executive Director EXECUTIVES Ken Bean Fergus Collins Peter Dubbelman Adrian Gratwicke Bernard Hale David Johnston Silvestro Morabito Harry Rumpler CEO Group Logistics and Corporate Development CEO Australian Liquor Marketers CEO Campbells Wholesale General Manager Finance Chief Information Officer Chief Human Resources Officer CEO IGA Distribution (appointed 17 February 2010) CEO IGA Fresh * Mr Jardin resigned from the Metcash Board on 9 February 2010 and was not considered a Key Management Personnel subsequent to this date. Mr Mark Laidlaw was appointed CEO of Mitre 10 on 29 April 2010. Due to the timing of this appointment, he did not act as Key Management Personnel for the period. Mr Mark Burrowes, the former CEO of Mitre 10, is not considered to have acted as Key Management Personnel from the period of acquisition, 25 March 2010 to 29 April 2010 as he does not meet the definition of Key Management Personnel. 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 financial reports by Accounting Standard AASB 124 Related Party Disclosures. These disclosures are provided within the Directors’ Report designated as audited. (b) OPTION HOLDING OF KEY MANAGEMENT PERSONNEL 30 APRIL 2010 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 S Morabito** H Rumpler Total BALANCE AT BEGINNING OF PERIOD 1 MAY 2009 GRANTED AS REMUNERATION OPTIONS EXERCISED OTHER ADJUSTMENTS BALANCE AT END OF PERIOD 30 APRIL 2010 VESTED AT 30 APRIL 2010 TOTAL EXERCISABLE – – – – – 1,200,000 650,000 650,000 650,000 400,000 50,000 400,000 550,000 990,000 400,000 – 550,000 6,490,000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (7,000) (340,000) – (300) – (347,300) – – – – – – – – – – – – – – – 400,000 – 400,000 – – – – – 1,200,000 650,000 650,000 650,000 400,000 50,000 400,000 543,000 650,000 400,000 399,700 550,000 – – – – – 960,000 520,000 520,000 520,000 320,000 40,000 320,000 33,000 520,000 320,000 39,700 40,000 – – – – – 960,000 520,000 520,000 520,000 320,000 40,000 320,000 33,000 520,000 320,000 39,700 40,000 6,542,700 4,152,700 4,152,700 * Mr Jardin resigned from the Metcash Board on 9 February 2010 and ceased to be a key management personnel at this time. Mr Jardin can exercise his options until his employment ceases on 1 March 2011. ** Mr Morabito was appointed CEO IGA Distribution 17 February 2010. Mr Morabito held 400,000 options prior to his appointment, which are reflected as other adjustments. S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 94 0 1 0 2 T R O P E R L A U N N A H S A C T E M 25 DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (CONTINUED) 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 Total BALANCE AT BEGINNING OF PERIOD 1 MAY 2008 GRANTED AS REMUNERATION OPTIONS EXERCISED OTHER ADJUSTMENTS BALANCE AT END OF PERIOD 30 APRIL 2009 VESTED AT 30 APRIL 2009 TOTAL EXERCISABLE – – – – – 1,200,000 650,000 650,000 650,000 400,000 50,000 400,000 50,000 990,000 400,000 50,000 – – – – – – – – – – – – 500,000 – – 500,000 5,490,000 1,000,000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 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 (c) SHAREHOLDING OF KEY MANAGEMENT PERSONNEL 30 APRIL 2010 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 S Morabito H Rumpler Total BALANCE AT BEGINNING OF PERIOD 1 MAY 2009 GRANTED AS REMUNERATION ON MARKET TRADE OPTIONS EXERCISED OTHER ADJUSTMENTS BALANCE AT THE END OF THE PERIOD 30 APRIL 2010 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 – – – – – – – – – – – – – – – – – – – – – – – 20,000 – (200,000) – – – – – (350,000) 3,708 – – – – (526,292) – – – – – – – – – – – – – 7,000 340,000 – 300 – 347,300 – – – – – – – – – – – – – – – – 5,400 – 5,400 54,100 177,083 1,750,000 50,000 20,000 – 320,000 – 128,154 15,000 – 1,600 50,350 45,950 610,000 80,000 5,700 – N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 3,307,937 95 * Mr Jardin resigned from the Metcash Board on 9 February 2010 and ceased to be a key management personnel at this time. M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 25 DIRECTORS’ AND EXECUTIVES’ DISCLOSURES (CONTINUED) BALANCE AT BEGINNING OF PERIOD 1 MAY 2008 GRANTED AS REMUNERATION ON MARKET TRADE OPTIONS EXERCISED OTHER ADJUSTMENTS (DRP ISSUE) BALANCE AT THE END OF THE PERIOD 30 APRIL 2009 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 – – – – – – – – – – – – – – – – – – – – – – – – – (329,986) – – – – (100,000) – (240,000) – – (669,986) – – – – – – – – – – – – – – – – – – 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 (d) COMPENSATION BY CATEGORY Short-Term Long-Term Post Employment Termination Benefits Share-Based Payments Total – – – – – – – – – – – – – – – – – – 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 METCASH GROUP 2010 $'m 12.1 3.0 0.4 – 0.4 15.9 2009 $'m 12.5 3.6 0.7 – 1.1 17.9 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. S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 96 0 1 0 2 T R O P E R L A U N N A H S A C T E M 26 AUDITOR'S REMUNERATION an audit or review of the financial report of the entity and any other entity in the consolidated entity tax compliance assurance related Amounts received or due and receivable by Ernst & Young (Australia) for: – – – Amounts received or due and receivable by related practices of Ernst & Young (Australia) for: – tax compliance METCASH GROUP METCASH LIMITED 2010 $ 2009 $ 2010 $ 2009 $ 1,455,300 1,237,065 311,255 10,230 3,013,850 1,580,500 683,041 17,800 – 2,281,341 – – – – – – – – – – 27 BUSINESS COMBINATIONS (a) THE METCASH GROUP ACQUIRED THE ASSETS OF THE FOLLOWING ENTITIES: DATE OF ACQUISITION ENTITY PURCHASED 11 May 2009 1 July 2009 25 March 2010 12 April 2010 Fresh Meat Markets (FMM) Produce Traders Trust – Citi Fruit (PTT) Mittenmet Limited Group – Mitre 10 Australia (M10) Cellarbrations at Baulkham Hills New South Wales (1) Acquisition of business assets. (2) Acquisition of majority interest. Produce Traders Trust 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 Less cash acquired Net purchase consideration Associate Investment Fair value of net identifiable assets acquired (c) Goodwill (c) Assets and liabilities acquired The assets and liabilities arising from the acquisition are as follows: Accounts receivable Prepayments Assets held for sale Property, plant and equipment Inventory Investment in associate Trade names Customer contracts Deferred tax assets Other non current assets Fair Value of forward currency contracts Creditors and employee benefits provision Borrowings Minority interest Fair value of net identifiable assets acquired attributable to the parent % ACQUIRED 100% (1) 60% (2) 50.1% 100% (1) TOTAL $'m 66.7 4.5 71.2 (11.2) 60.0 0.3 (21.1) 39.2 110.3 0.8 4.0 20.6 28.8 6.1 27.2 9.9 5.9 3.2 (0.6) (127.2) (12.8) (55.1) 21.1 MITRE 10 $'m OTHER $'m 55.2 3.4 58.6 (10.9) 47.7 – (20.4) 27.3 107.7 0.8 4.0 18.8 28.3 6.1 27.2 9.9 5.9 3.2 (0.6) (123.0) (12.8) (55.1) 20.4 11.5 1.1 12.6 (0.3) 12.3 0.3 (0.7) 11.9 2.6 – – 1.8 0.5 – – – – – – (4.2) – – 0.7 N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 97 M E T C A S H A N N U A L R E P O R T 2 0 1 0 NOTES TO THE FINANCIAL STATEMENTS CONTINUED 27 BUSINESS COMBINATIONS (CONTINUED) The fair value of the identifiable assets and liabilities of FMM and PTT approximated their carrying values at the dates of acquisition. The results of FMM and PTT from acquisition to 30 April 2010 have not been disclosed separately as they are not significant to the total Group results. The revenue and results of the total Metcash Group for the period ended 30 April 2010, as though FMM and PTT had been acquired on 1 May 2009, would not be significantly different from the Group results as currently reported. The accounting for the above business combinations is provisional as at 30 April 2010. (d) In addition to the $60.0 million paid for business acquisition disclosed at (b) above, an amount of $2.0 million was paid in July 2009 in final settlement of the Market Garden Produce acquisition. An amount of $2.4 million was provided at 30 April 2009 for this settlement. The difference of $0.4 million has been taken against goodwill. (e) The acquisition by Metcash of 50.1% of the Mitre 10 business was through the issue of ordinary shares in Mittenmet Limited, the immediate parent undertaking of Mitre 10 . The former shareholders of Mitre 10 were issued with Convertible Redeemable Preference Shares, representing the remaining 49.9% interest in Mittenmet Limited. Metcash paid $27.61 million for the equity, and advanced a further $27.61 million in the form of a loan. This loan will be converted to equity on 30 June 2010 at a rate dependent upon the result of Mitre 10 for the year then ended. Metcash has the option to force the redemption of the preference shares as at 30 June 2012 or 2013 at a rate dependent up on the results to date. Otherwise, if they do not exercise that option, they will convert to ordinary shares at that date. Metcash has the option to force the redemption of the preference shares as at 30 June 2012 or 2013 at a rate dependent upon the results to date. Otherwise, if they do not exercise that option, they will convert to ordinary shares at that date. The purchase price accounting for the final consideration for Mitre 10 is based upon Management's judgement that EBITDA for the year ending 30 June 2010 falls within a specified range and no adjustment to the purchase consideration is required. (f) The consolidated statement of comprehensive income includes sales revenue and profit after tax for the year ended 30 April 2010 of $61.6 million and $1.0 million respectively, as a result of the acquisition of 50.1% of Mitre 10 (M10). Had the acquisition of M10 occurred at the beginning of the reporting period, the consolidated statement of comprehensive income would have reported revenue and profit after tax of $12,375.8 million and $241.6 million respectively. (g) In the prior period ended 30 April 2009, the Metcash Group acquired the assets of the following entities: DATE OF ACQUISITION ENTITY PURCHASED 2 June 2008 3 July 2008 16 August 2008 28 December 2008 28 November 2008 5 February 2009 1 April 2009 Market Garden Produce (MGP) Solomons Food Group (SFG) – Produce APFB GemFruitz (APFB) IGA Fresh (NSW) Pty Ltd (formerly RKH Services Pty Ltd) Rainfresh Group (Rainfresh Pty Ltd, Nufruit Pty Ltd, NFRF Developments Pty Ltd) Solomons Food Group (SFG) – Food Service Kelly’s Providores Pty Ltd % ACQUIRED 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. 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. 28 EARNINGS PER SHARE The following reflects the income and share data used in the basic and diluted earnings per share computations: Net profit attributable to ordinary equity holders of Metcash Limited Adjustments: Earnings used in calculating basic and diluted earnings per share Weighted average number of ordinary shares used in calculating basic earnings per share Effect of dilutive securities Share options Weighted average number of ordinary shares used in calculating diluted earnings per share 2010 $'m 2009 $'m 227.6 202.5 227.6 NUMBER 202.5 NUMBER 765,178,865 764,843,880 1,129,914 579,379 766,308,779 765,423,259 There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements. S T N E M E T A T S L A I C N A N I F E H T O T S E T O N 98 0 1 0 2 T R O P E R L A U N N A H S A C T E M 29 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 FRANKLINS Refer to Note 30 Subsequent events in respect of Franklins. AMERICAN EXPRESS CHARGE CARD METCASH GROUP METCASH LIMITED 2010 $'m 19.2 3.2 146.0 13.3 2009 $'m 18.4 3.2 77.3 13.6 2010 $'m 2009 $'m – – – – – – – – On the 9th May 2007 Metcash Trading Limited entered into an agreement with American Express (Amex), due to expire on 31 July 2012, 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 options have the right to "put" these non-financial assets back to the Company within an agreed period and under certain prescribed circumstances. The estimate of the financial effect of the put options, if exercised, is the aggregate of the purchase price as defined in the option deed or business sale agreement. 30 SUBSEQUENT EVENTS On 9 June 2010, the Group entered into a number of Interest Rate Swap contracts with various major Australian Banks. The principal hedged is $300,000,000 with a weighted hedge maturity of 2 years and a weighted average interest rate of 5.059%. The Group considers that these derivatives will be effective hedges in accordance with AASB 139 Financial Instruments: Recognition and Measurement and will be accounted for as a cash flow hedge in accordance with the Company’s stated accounting policies. On 1 July 2010, the Group entered into an agreement with Pick n Pay Retailers (Pty) Limited (Pick n Pay) of South Africa to acquire the shares of Interfrank Group Holdings Pty Ltd, the company which owns the Franklins business (which consists of 85 Supermarkets, comprising 77 corporate stores plus supply to 8 franchised stores), from Pick n Pay for a consideration of approximately $215,000,000, to be paid on completion – expected by 30 September, 2010. N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 99 M E T C A S H A N N U A L R E P O R T 2 0 1 0 DIRECTORS' DECLARATION In accordance with a resolution of the directors of Metcash Limited, I state that: 1. In the opinion of the directors: (a) The financial 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 financial position as at 30 April 2010 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 financial year ending 30 April 2010. 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 identified in note 24 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, 9 July 2010 N O I T A R A L C E D ' S R O T C E R I D 100 0 1 0 2 T R O P E R L A U N N A H S A C T E M AUDITOR'S INDEPENDENCE DECLARATION Year ended 30 April 2010 Auditor's Independence Declaration to the Directors of Metcash Limited In relation to our audit of the financial report of Metcash Limited for the year ended 30 April 2010, 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 Michael J Wright Partner Date: 9 July 2010 A U D I T O R ' S I N D E P E N D E N C E D E C L A R A T I O N 101 M E T C A S H A N N U A L R E P O R T 2 0 1 0 Liability limited by a scheme approved under Professional Standards Legislation INDEPENDENT AUDITOR'S REPORT Independent auditor’s report to the members Metcash Limited Report on the Financial Report We have audited the accompanying financial report of Metcash Limited, which comprises the statement of financial position as at 30 April 2010, and the statement of comprehensive income, statement of changes in equity and statement of cash flows 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. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with the Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes 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. 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. 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 met the independence requirements of the Corporations Act 2001. We have given to the directors of the company a written Auditor’s Independence Declaration, a copy of which is included by reference in the directors’ report. In addition to our audit of the financial report, we were engaged to undertake the services disclosed in the notes to the financial statements. The provision of these services has not impaired our independence. Liability limited by a scheme approved under Professional Standards Legislation T R O P E R S ' R O T I D U A T N E D N E P E D N I 102 0 1 0 2 T R O P E R L A U N N A H S A C T E M INDEPENDENT AUDITOR'S REPORT (CONTINUED) Auditor’s Opinion In our opinion: 1. the financial report of Metcash Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the financial position of Metcash Limited and the consolidated entity at 30 April 2010 and of their performance for the year ended on that date; and (ii) 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 pages 45 to 53 of the directors’ report for the year ended 30 April 2010. 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 2010, complies with section 300A of the Corporations Act 2001. Ernst & Young Michael J Wright Partner Sydney Date: 9 July 2010 I N D E P E N D E N T A U D I T O R ' S R E P O R T 103 M E T C A S H A N N U A L R E P O R T 2 0 1 0 ASX ADDITIONAL INFORMATION Year ended 30 April 2010 Additional information required by the Australian Securities Exchange and not shown elsewhere in this report is as follows. The information is current as at 9 July 2010. (a) DISTRIBUTION OF EQUITY SECURITIES The number of shareholders, by size of holding, in each class of share are: (cid:51)(cid:41)(cid:58)(cid:37)(cid:0)(cid:47)(cid:38)(cid:0)(cid:40)(cid:47)(cid:44)(cid:36)(cid:41)(cid:46)(cid:39)(cid:0) 1–1,000 1,001–5,000 5,001-–10,000 10,001–100,000 100,001–-9,999,999,999 Total There were 376 shareholders holding less than a marketable parcel of Metcash ordinary shares. (b) TWENTY LARGEST SHAREHOLDERS The names of the 20 largest holders of quoted shares are: (cid:0) (cid:46)(cid:33)(cid:45)(cid:37)(cid:0) HSBC Custody Nominees (Australia) Limited National Nominees Limited J P Morgan Nominees Australia Limited Citicorp Nominees Pty Limited RBC Dexia Investor Services Australia Nominees Pty LimitedCogent Nominees Pty Limited ANZ Nominees Limited RBC Dexia Investor Services Australianominees Pty Limited AMP Life Limited Australian Foundation Investment Company Limited RBC Dexia Investor Services Australia Nominees Pty Limited Citicorp Nominees Pty Limited Australian Reward Investment Alliance Milton Corporation Limited UBS Nominees Pty Ltd RBC Dexia Investor Services Australia Nominees Pty Limited Invia Custodian Pty Limited Mr Andrew Reitzer Sandhurst Trustees Ltd Brickworks Investment Company Limited (c) SUBSTANTIAL SHAREHOLDERS The following is extracted from the Company’s register of substantial shareholders: N O I T A M R O F N I L A N O I T I D D A X S A 104 (cid:46)(cid:33)(cid:45)(cid:37)(cid:0) Westpac Banking Corporation Group Perennial Investment Partners Limited (PIPL) National Australia Bank Limited Group Maple-Brown Abbott Limited (d) VOTING RIGHTS All ordinary shares (whether fully paid or not) carry one vote per share without restriction. 0 1 0 2 T R O P E R L A U N N A H S A C T E M (cid:46)(cid:53)(cid:45)(cid:34)(cid:37)(cid:50)(cid:0)(cid:47)(cid:38)(cid:0)(cid:51)(cid:40)(cid:33)(cid:50)(cid:37)(cid:40)(cid:47)(cid:44)(cid:36)(cid:37)(cid:50)(cid:51) 8,202 21,313 6,265 4,037 153 39,970 (cid:0)(cid:0) (cid:46)(cid:53)(cid:45)(cid:34)(cid:37)(cid:50)(cid:0)(cid:0)(cid:47)(cid:38)(cid:0)(cid:51)(cid:40)(cid:33)(cid:50)(cid:37)(cid:51)(cid:0) (cid:48)(cid:37)(cid:50)(cid:35)(cid:37)(cid:46)(cid:52)(cid:33)(cid:39)(cid:37)(cid:0)(cid:47)(cid:38)(cid:0)(cid:0) (cid:47)(cid:50)(cid:36)(cid:41)(cid:46)(cid:33)(cid:50)(cid:57)(cid:0)(cid:51)(cid:40)(cid:33)(cid:50)(cid:37)(cid:51) 218,390,534 104,108,952 88,125,390 31,265,141 16,765,501 11,719,055 8,564,426 6,610,020 5,225,317 4,750,000 4,435,072 4,080,000 3,692,317 2,721,060 2,340,284 2,034,321 1,984,609 1,750,000 1,709,946 1,699,000 28.513 13.592 11.505 4.082 2.189 1.530 1.118 0.863 0.682 0.620 0.579 0.533 0.482 0.355 0.306 0.266 0.259 0.228 0.223 0.222 521,970,945 68.147 (cid:46)(cid:53)(cid:45)(cid:34)(cid:37)(cid:50)(cid:0)(cid:47)(cid:38)(cid:0)(cid:51)(cid:40)(cid:33)(cid:50)(cid:37)(cid:51) 85,870,034 85,366,361 46,569,493 46,258,072 CORPORATE (cid:41)(cid:46)(cid:38)(cid:47)(cid:50)(cid:45)(cid:33)(cid:52)(cid:41)(cid:47)(cid:46) ABN 32 112 073 480 Directors (cid:35)(cid:65)(cid:82)(cid:76)(cid:79)(cid:83)(cid:0)(cid:51)(cid:0)(cid:68)(cid:79)(cid:83)(cid:0)(cid:51)(cid:65)(cid:78)(cid:84)(cid:79)(cid:83)(cid:0)(cid:8)(cid:35)(cid:72)(cid:65)(cid:73)(cid:82)(cid:77)(cid:65)(cid:78)(cid:9) (cid:48)(cid:69)(cid:84)(cid:69)(cid:82)(cid:0)(cid:44)(cid:0)(cid:34)(cid:65)(cid:82)(cid:78)(cid:69)(cid:83)(cid:0)(cid:8)(cid:36)(cid:69)(cid:80)(cid:85)(cid:84)(cid:89)(cid:0)(cid:35)(cid:72)(cid:65)(cid:73)(cid:82)(cid:77)(cid:65)(cid:78)(cid:9) (cid:33)(cid:78)(cid:68)(cid:82)(cid:69)(cid:87)(cid:0)(cid:50)(cid:69)(cid:73)(cid:84)(cid:90)(cid:69)(cid:82)(cid:0)(cid:8)(cid:35)(cid:37)(cid:47)(cid:9) (cid:45)(cid:73)(cid:67)(cid:72)(cid:65)(cid:69)(cid:76)(cid:0)(cid:50)(cid:0)(cid:34)(cid:85)(cid:84)(cid:76)(cid:69)(cid:82) (cid:46)(cid:69)(cid:73)(cid:76)(cid:0)(cid:36)(cid:0)(cid:40)(cid:65)(cid:77)(cid:73)(cid:76)(cid:84)(cid:79)(cid:78) (cid:45)(cid:73)(cid:67)(cid:72)(cid:65)(cid:69)(cid:76)(cid:0)(cid:50)(cid:0)(cid:42)(cid:79)(cid:66)(cid:76)(cid:79)(cid:78)(cid:83)(cid:75)(cid:73) (cid:37)(cid:68)(cid:87)(cid:73)(cid:78)(cid:0)(cid:45)(cid:0)(cid:42)(cid:65)(cid:78)(cid:75)(cid:69)(cid:76)(cid:79)(cid:87)(cid:73)(cid:84)(cid:90) (cid:50)(cid:73)(cid:67)(cid:72)(cid:65)(cid:82)(cid:68)(cid:0)(cid:33)(cid:0)(cid:44)(cid:79)(cid:78)(cid:71)(cid:69)(cid:83) (cid:54)(cid:0)(cid:36)(cid:85)(cid:68)(cid:76)(cid:69)(cid:89)(cid:0)(cid:50)(cid:85)(cid:66)(cid:73)(cid:78) Company Secretary (cid:42)(cid:79)(cid:72)(cid:78)(cid:0)(cid:33)(cid:0)(cid:50)(cid:65)(cid:78)(cid:68)(cid:65)(cid:76)(cid:76) (cid:50)(cid:37)(cid:39)(cid:41)(cid:51)(cid:52)(cid:37)(cid:50)(cid:37)(cid:36)(cid:0)(cid:47)(cid:38)(cid:38)(cid:41)(cid:35)(cid:37) (cid:21)(cid:16)(cid:0)(cid:55)(cid:65)(cid:84)(cid:69)(cid:82)(cid:76)(cid:79)(cid:79)(cid:0)(cid:50)(cid:79)(cid:65)(cid:68) (cid:45)(cid:65)(cid:67)(cid:81)(cid:85)(cid:65)(cid:82)(cid:73)(cid:69)(cid:0)(cid:48)(cid:65)(cid:82)(cid:75)(cid:0)(cid:46)(cid:51)(cid:55)(cid:0)(cid:18)(cid:17)(cid:17)(cid:19) 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