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Collective
Annual Report
2011
STRENGTH
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www.metcash.com
Annual Report
Collective
2011
STRENGTH
Independent
SPIRIT
P r i ce
&
Ran g e
Metcash Limited
Metcash is Australia’s leading wholesale
distribution and marketing company specialising
in grocery, fresh produce, liquor, other fast
moving consumer goods and hardware. We thank
our diverse network of customers, suppliers,
employees and the community for making Metcash
the company it is today.
Business Model
LINKED TOGETHER
IN THE SPIRIT OF THE
INDEPENDENTS • GIVING INDEPENDENT RETAILERS THE SUPPORT TO GROW.
• DEFENSIVE QUALITIES OF OUR BUSINESS AS WE SELL EVERYDAY NEEDS.
• RESILIENCE OF OUR BUSINESS MODEL AS WE PROVIDE WORLD CLASS
LOGISTICS, BUYING STRENGTH, MARKETING & BRAND-BUILDING
AND THE RETAILER PROVIDES ENTREPRENEURIAL SPIRIT.
CORPORATE INFORMATION
Warehouses & Distribution
Our operations are supported by world class
distribution, logistics and warehousing capabilities.
Our logistical excellence is achieved through strong
relationships with our suppliers and investment in
technology and infrastructure, enabling reduced
costs and greater effi ciencies.
Australian Liquor Marketers (ALM)
ALM is a broad range liquor wholesaler supplying
hotels, liquor stores, restaurants and other licensed
premises throughout Australia and New Zealand. ALM
also markets three major independent retail brands
across Australia.
Mitre 10
In March 2010, Metcash acquired a 50.1% stake in
the Mitre 10 Group. Mitre 10 is the second largest
business in the Australian home improvement and
hardware industry. It operates as a wholesale supplier
to the independently owned Mitre 10 retailers who
sell home improvement and hardware products.
Community
Key to our success is being part of the community
and understanding what matters to local
consumers. We support the communities in which
we live through our engagement programs by giving
back through donations and other support.
ABN 32 112 073 480
DIRECTORS
Peter Barnes (Chairman)
Andrew Reitzer (CEO)
Fiona Balfour
Michael Butler
Neil Hamilton
Edwin Jankelowitz
Richard Longes
V Dudley Rubin
COMPANY SECRETARY
Greg Watson
REGISTERED OFFICE
50 Waterloo Road
Macquarie Park NSW 2113
Telephone: 61 2 9751 8200
SHARE REGISTER
Boardroom Pty Limited
GPO Box 3993
Sydney NSW 2001
Telephone: 61 2 9290 9600
Facsimile: 61 2 9279 0664
AUDITOR
Ernst & Young
INTERNET ADDRESS
www.metcash.com
Silverwater Business Centre NSW 1811
Silverwater Business Centre NSW 1811
IGA DISTRIBUTION HEAD OFFICE
MITRE 10 HEAD OFFICE
CAMPBELLS WHOLESALE HEAD OFFICE
Ph: 61 2 9741 3000
Fax: 61 2 9751 8298
4 Newington Road
Silverwater NSW 2128
Postal Address
PO Box 6226
Ph: 61 3 9703 4200
Fax: 61 3 9703 4222
12 Dansu Court
Hallam VIC 3803
Postal Address
Locked Bag 10
NATIONAL OFFICE
Ph: 61 2 9751 8200
Fax: 61 2 9741 3027
50 Waterloo Road
Macquarie Park NSW 2113
Postal Address
PO Box 6226
Ph: 61 2 9751 8200
Fax: 61 2 9741 3055
50 Waterloo Road
Macquarie Park NSW 2113
Postal Address
PO Box 6226
HEAD OFFICE
Ph: 61 2 9741 3000
Fax: 61 2 9741 3009
4 Newington Road
Silverwater NSW 2128
Postal Address
PO Box 6226
Silverwater Business Centre NSW 1811
Silverwater Business Centre NSW 1811
Doveton VIC 3177
AUSTRALIAN LIQUOR MARKETERS
IGA Distribution (IGA>D)
IGA>D provides independent retailers with the
brand, marketing and buying scale necessary
to compete in a highly concentrated retail
market. From its six major distribution centres,
IGA>D distributes grocery products and general
merchandise across Australia. IGA Fresh distributes
fresh produce from eight major facilities and meat
from its ‘state of the art’ centre in Western Australia.
Campbells Wholesale
Campbells Wholesale is a multi-format distributor
of grocery, general merchandise, confectionery,
foodservice and liquor products. It services small
business customers and retailers across Australia,
leveraging its ability to offer a supply solution to
nationally based customers.
Our Customers
Our success is measured by the success of our
customers – the independent retailers. For the most
part, these are business owners operating stores in
their local neighbourhoods – the face of the business
and part of the community. We support our customers
by providing a quality offering of products and
services, including our own private labelled products,
at competitive prices, allowing them to compete and
grow their own businesses.
Our People
Our people are the bedrock of our organisation.
Crucial to our ability to support our customers is the
continuous development and support of our internal
human resources. Our staff are supported through
talent management, leadership development,
employee engagement and workplace relations.
The cover and text sections of this report are printed on Mega Recycled Silk A2+, an
The back section of this report is printed on Grange Laser which is PEFC certifi ed.
environmentally considered sheet consisting of 50% post consumer recycled waste
With ISO 14001 EMS accreditation, this wood free sheet is also made elemental
and 50% FSC certifi ed fi bre. Mega Recycled is manufactured at the mill, which has its
chlorine free.
own waste water treatment plant and are ISO 14001 EMS approved. Mega Recycled
is made elemental chlorine free.
D E S I G N E D A N D P R O D U C E D B Y D E S I G N A T E I N V E S T O R
P r i ce
&
Ran g e
Metcash Limited
Metcash is Australia’s leading wholesale
distribution and marketing company specialising
in grocery, fresh produce, liquor, other fast
moving consumer goods and hardware. We thank
our diverse network of customers, suppliers,
employees and the community for making Metcash
the company it is today.
LINKED TOGETHER
IN THE SPIRIT OF THE
INDEPENDENTS • GIVING INDEPENDENT RETAILERS THE SUPPORT TO GROW.
• DEFENSIVE QUALITIES OF OUR BUSINESS AS WE SELL EVERYDAY NEEDS.
• RESILIENCE OF OUR BUSINESS MODEL AS WE PROVIDE WORLD CLASS
LOGISTICS, BUYING STRENGTH, MARKETING & BRAND-BUILDING
AND THE RETAILER PROVIDES ENTREPRENEURIAL SPIRIT.
Business Model
Warehouses & Distribution
Our operations are supported by world class
distribution, logistics and warehousing capabilities.
Our logistical excellence is achieved through strong
relationships with our suppliers and investment in
technology and infrastructure, enabling reduced
costs and greater effi ciencies.
Australian Liquor Marketers (ALM)
ALM is a broad range liquor wholesaler supplying
hotels, liquor stores, restaurants and other licensed
premises throughout Australia and New Zealand. ALM
also markets three major independent retail brands
across Australia.
Mitre 10
In March 2010, Metcash acquired a 50.1% stake in
the Mitre 10 Group. Mitre 10 is the second largest
business in the Australian home improvement and
hardware industry. It operates as a wholesale supplier
to the independently owned Mitre 10 retailers who
sell home improvement and hardware products.
Community
Key to our success is being part of the community
and understanding what matters to local
consumers. We support the communities in which
we live through our engagement programs by giving
back through donations and other support.
IGA Distribution (IGA>D)
IGA>D provides independent retailers with the
brand, marketing and buying scale necessary
to compete in a highly concentrated retail
market. From its six major distribution centres,
IGA>D distributes grocery products and general
merchandise across Australia. IGA Fresh distributes
fresh produce from eight major facilities and meat
from its ‘state of the art’ centre in Western Australia.
Campbells Wholesale
Campbells Wholesale is a multi-format distributor
of grocery, general merchandise, confectionery,
foodservice and liquor products. It services small
business customers and retailers across Australia,
leveraging its ability to offer a supply solution to
nationally based customers.
Our Customers
Our success is measured by the success of our
customers – the independent retailers. For the most
part, these are business owners operating stores in
their local neighbourhoods – the face of the business
and part of the community. We support our customers
by providing a quality offering of products and
services, including our own private labelled products,
at competitive prices, allowing them to compete and
grow their own businesses.
Our People
Our people are the bedrock of our organisation.
Crucial to our ability to support our customers is the
continuous development and support of our internal
human resources. Our staff are supported through
talent management, leadership development,
employee engagement and workplace relations.
The cover and text sections of this report are printed on Mega Recycled Silk A2+, an
The back section of this report is printed on Grange Laser which is PEFC certifi ed.
environmentally considered sheet consisting of 50% post consumer recycled waste
With ISO 14001 EMS accreditation, this wood free sheet is also made elemental
and 50% FSC certifi ed fi bre. Mega Recycled is manufactured at the mill, which has its
chlorine free.
own waste water treatment plant and are ISO 14001 EMS approved. Mega Recycled
is made elemental chlorine free.
D E S I G N E D A N D P R O D U C E D B Y D E S I G N A T E I N V E S T O R
CORPORATE INFORMATION
ABN 32 112 073 480
DIRECTORS
Peter Barnes (Chairman)
Andrew Reitzer (CEO)
Fiona Balfour
Michael Butler
Neil Hamilton
Edwin Jankelowitz
Richard Longes
V Dudley Rubin
COMPANY SECRETARY
Greg Watson
REGISTERED OFFICE
50 Waterloo Road
Macquarie Park NSW 2113
Telephone: 61 2 9751 8200
SHARE REGISTER
Boardroom Pty Limited
GPO Box 3993
Sydney NSW 2001
Telephone: 61 2 9290 9600
Facsimile: 61 2 9279 0664
AUDITOR
Ernst & Young
INTERNET ADDRESS
www.metcash.com
Silverwater Business Centre NSW 1811
Silverwater Business Centre NSW 1811
IGA DISTRIBUTION HEAD OFFICE
MITRE 10 HEAD OFFICE
CAMPBELLS WHOLESALE HEAD OFFICE
Ph: 61 2 9741 3000
Fax: 61 2 9751 8298
4 Newington Road
Silverwater NSW 2128
Postal Address
PO Box 6226
Ph: 61 3 9703 4200
Fax: 61 3 9703 4222
12 Dansu Court
Hallam VIC 3803
Postal Address
Locked Bag 10
NATIONAL OFFICE
Ph: 61 2 9751 8200
Fax: 61 2 9741 3027
50 Waterloo Road
Macquarie Park NSW 2113
Postal Address
PO Box 6226
Ph: 61 2 9751 8200
Fax: 61 2 9741 3055
50 Waterloo Road
Macquarie Park NSW 2113
Postal Address
PO Box 6226
HEAD OFFICE
Ph: 61 2 9741 3000
Fax: 61 2 9741 3009
4 Newington Road
Silverwater NSW 2128
Postal Address
PO Box 6226
Silverwater Business Centre NSW 1811
Silverwater Business Centre NSW 1811
Doveton VIC 3177
AUSTRALIAN LIQUOR MARKETERS
Contents About Metcash
Chairman & CEO’s Report
Financial Review
Five Year Review
Review of Operations
IGA Distribution
Australian Liquor Marketers
Campbells Wholesale
Mitre 10
Corporate Social Responsibility
Executive Team
Board of Directors
Corporate Governance Statement
Additional Financial Information
Directors’ Report
Financial Statements
Notes to the Financial Statements
Directors’ Declaration
Auditor’s Independence Declaration
Independent Auditor’s Report
2
4
6
9
10
12
16
18
20
22
28
30
32
40
42
56
60
96
97
98
Annual general meeting
01.09.2011
Ballroom 1 Four Seasons Hotel
2.30pm
199 George Street, Sydney, NSW
ASX Additional Information
100
2
A B O U T M E T C A S H
About
Metcash
Metcash’s mission is to be the
‘champion of the independent retailer’.
Metcash champions the interests
of the independent grocery, liquor
and hardware sectors through the
leadership of our high calibre staff,
partnership with our independent
retailer network and our pioneering
approach to warehousing and
distribution logistics.
Our network of independent retailers
provides us with the scale necessary
to create competitive buying power.
Our marketing and brand building
capabilities provide a platform for
independent retailers to operate under
unified and distinct retail store brands.
Our merchandising ability, distribution
logistics and warehousing capabilities
ensure that we allow our independent
retail customers to meet the needs of
their consumers.
Metcash Limited (Metcash) is
Australia’s leading wholesale
distribution and marketing company
specialising in grocery, fresh produce,
liquor, other fast moving consumer
goods, and hardware.
Metcash has four divisions, often
referred to as its business pillars, each
operating in a distinct wholesaling
industry segment:
›
IGA Distribution;
› Australian Liquor Marketers;
› Campbells Wholesale; and
› Mitre 10.
With the exception of Mitre 10, which
is 50.1% owned, the business pillars
are wholly owned by Metcash.
Through Australian Liquor
Marketers, Metcash also operates
in New Zealand.
Predominantly, Metcash’s customers
are independently owned grocery
and liquor stores. After acquiring a
majority interest in the Mitre 10 Group
in March 2010, Metcash’s customer
range has been broadened to include
independent hardware stores.
Our Values
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.
Our Priorities
› Ensuring our employees are
empowered and committed
to organisation goals through
improved development programs
and communication channels.
› Providing safe work environments
for all employees, supported by
relevant training and working with
our employees to help maintain
good work- life balance.
› Working to achieve consistently
high service levels for our
customers as we recognise that
our success is critically dependent
on the success of our independent
retailer network.
› Working in partnership with our
stakeholder network to ensure
that we meet our shared and
individual goals.
› chaMpioning the custoMer
› our stakeholders are entitled to added Value
› responsibility & personal accountability
› eMpowering our people & supporting our coMMunities
Values are
nothing
without
integrity
CORE VALUES
M E T C A S H A N N U A L R E P O R T 2 0 1 1
3
Campbells Wholesale Mitre 10
Mitre 10 is Australia’s
largest independent home
improvement and hardware
wholesaler with an iconic
independent retail network of
420 Mitre 10 and True Value
Hardware stores nationally.
Mitre 10 operates four
warehouses across Australia.
Campbells Wholesale is a
multi-format distributor of
grocery, confectionery, tobacco,
liquor, soft drinks, foodservice
and general merchandising
products.
Campbells Wholesale has
three divisions tailored to
specific customer segments:
›
traditional convenience;
› modern petrol and
convenience; and
›
foodservice.
The business operates using
a national network of over
30 branches.
coMpany pillars
IGA Distribution
Australian Liquor
Marketers
IGA Distribution (IGA›D) is
Australia’s largest grocery
wholesale distribution and
marketing company supplying
grocery products (dry, chilled,
frozen and fresh) and general
merchandise to independent
businesses nationally.
IGA›D operates six major
distribution centres and eight
dedicated fresh produce
warehouses across Australia.
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.
ALM operates 15 distribution
centres in Australia and
New Zealand.
CORE VALUES
4
C H A I R M A N & C E O ’ S R E P O R T
ChAirmAn & Ceo’s
report
We are pleased to announce a
full year dividend of 27 cents
for this financial year.
The 2011 financial year was a
successful one for Metcash with
the company posting its twelfth
successive record profit. This result
was achieved in the face of difficult
operating circumstances. Deflation
again made trading difficult. However,
the company performed strongly.
Despite the challenging retail
environment, Metcash increased
wholesale sales from core operations
by 7.4% to $12.36 billion. Reported
profit after tax rose 6.1% to $241
million, while EBITA increased 9.2% to
$438 million. As a result, Metcash has
increased its underlying(1) earnings per
share to 33.4 cents. The fully franked
total dividend for the year of 27 cents
represents a payout ratio of 81%.
The cost of doing business continued
to be well controlled in each of the
business divisions through supply
chain improvements and further
technological innovation. Our balance
sheet remains strong and all required
borrowing facilities are in place.
The solid result was achieved through
the steady performance and resilience
of our independent retailer customers.
This has seen Metcash and our
customers continuing to invest in
strengthening their operations and,
as a result, maintaining their grocery
market share.
All divisions within the Group remain
focussed on improving operational
efficiency in the prevailing deflationary
environment and we continued our
substantial investment in modernising
the independent sector’s support
structures and supply chain.
Construction of the mega distribution
centre in New South Wales is well
ahead of schedule; this heralds
an exciting future for independent
retailers in New South Wales and
provides a sound basis for long term
sustainable growth.
Championing the independent retailer
remains the core of our business
model. As a wholesale distribution
and marketing company, we have
continued to provide independent
retailers with the means to compete
effectively. Our buying power with
suppliers, world-class logistics and
extensive merchandising, marketing
and operational support sets us
apart from the competition and
allows our independent retailers
to compete effectively.
Our extensive distribution network was
further strengthened this year giving
our ‘virtual’ chain of independent
retailers all the benefits of a major
retail chain, without losing the ability
to act and execute locally. The
independent retailers are business
owners operating stores in their local
neighbourhoods. They are the face
of the business and are very much
part of the community engaging with
consumers and employees on a daily
basis. This approach continues to be
an important point of differentiation
and one we particularly focussed on
this year; it is intrinsic to the success
of the Metcash business model.
Our model depends on a close
working relationship between the
independent retailers and Metcash
and, as such, each works together
to ensure each store, and therefore
the network, is strong. With our
independent retailer network, we
invested in developing 65 new stores
with a total area of 56,925 square
metres. Of these, 56 joined our
flagship IGA brand. Out of a total
of 26 conversions, 17 independent
retailers converted from other store
brands to the IGA brand. The high
number of conversions underlines the
appeal of Metcash’s premier banner
and the strength of its marketing
and merchandising programs. In
addition, there were 20 extensions to
existing stores and 41 refurbishments
completed in conjunction with
store owners.
The Australian liquor market had a
difficult year with a continued decline
in the consumption of packaged liquor
and the impact of severe weather
conditions in many of our key markets.
Despite these conditions, ALM
achieved sales growth on a ‘like for
like’(1) basis of 2.7% and ‘like for like’(1)
EBITA growth of 20.4%.
Campbells Wholesale, our multi-
format distributor of grocery,
general merchandise, confectionery,
foodservice and liquor product
wholesaler, had a 4.7% sales increase
on a ‘like for like’(1) basis and EBITA
uplift of 10%. Campbells Wholesale
continues to evolve its offer of
specialised supply solutions that
saw the roll-out of a new in-store
convenience concept.
Mitre 10 contributed strongly in its
first full year of operations with sales
of $797.6 million and EBITA of $20.7
million. The turnaround initiatives
introduced after acquisition of the
business in March 2010 are proving
effective and Mitre 10 is attracting new
retailers to the brand.
Metcash continued to support the
success of independent retailers
through ongoing investment in supply
chain modernisation. The company
has invested significantly in recent
years to streamline processes through
improved technology. This year,
(1) Refer to Additional Financial Information on page 40.
M E T C A S H A N N U A L R E P O R T 2 0 1 1
5
retailers benefited greatly from the
mini-loader – an automated storage
and retrieval system that incorporates
a robotic crane picking system.
Another example of the way we are
innovating to assist the independent
retailers was the acquisition in June
2011 of Scanning Systems Australia,
an advanced back office and point of
sale system provider. This acquisition
of improved in-store technology
capabilities will enable us to better
support our independent retailers to
plan and deliver innovative operational
and customer service improvements.
Corporate responsibility to the
communities we serve is a prime
focus for Metcash. Not only does
our retail strategy require that we
actively encourage our suppliers to
commit to using local ingredients
in our IGA Signature brands, but
also that two cents from every IGA
Signature product sold is donated to
the local IGA Community Chest. We
are very proud of this initiative. The
IGA Community Chest and associated
programs raised in excess of
$55 million in the last 9 years. All funds
raised have been donated to local
community groups and not-for-profit
organisations.
We would again like to thank all our
shareholders for your continued
support. The future continues to look
bright for your company and we are
confident that there are many new
and exciting initiatives just around the
corner. We would also like to thank
our fellow Directors, employees,
customers and suppliers for their
hard work and support over the last
12 months.
THANK
YOU
We would again like to thank all
our shareholders for your continued
support. The future continues to look
bright for your company and we
are confident that there are many
new and exciting initiatives just
around the corner.
Andrew Reitzer
(CEO Metcash Group of Companies)
Andrew Reitzer (CEO Metcash Group of Companies)
Peter Barnes (Chairman)
Peter Barnes
(Chairman)
12TH SUCCESSiVE
RECORd
pROfiT
15000
12000
9000
6000
3000
0
15000
12000
9000
6000
3000
0
500
400
300
200
100
0
250
200
150
100
50
0
35
30
25
20
15
10
5
0
EBITA
15000
12000
9000
15000
6000
12000
3000
9000
0
6000
3000
0
15000
12000
9000
15000
6000
12000
3000
9000
0
6000
3000
0
500
400
300
500
200
1500
400
100
1200
300
0
900
200
600
100
300
0
0
TOTAL REVENUE
TOTAL SALES REVENUE
15000
12000
9000
6000
3000
0
6
20
WHOLESALE SALES
F I N A N C I A L R E V I E W
MARKET SHARE %
15
FinAnCiAl
reView
10
15000
12000
5
9000
0
6000
TOTAL REVENUE
9000
15000
6000
TOTAL SALES REVENUE
15
10
.
5
3
6
.
9
2
6
.
8
2
2
.
1
6
2
5
.
5
9
2
.
0
2
3
09
10
11
07
08
09
10
11
0
15000
12000
9000
6000
3000
0
uPby
4.4%
(cents)
UNDErlyING(1)
EarNINGS
UNDERLYING EARNINGS PER SHARE
pEr SharE
TOTAL SALES REVENUE
33.4
OPERATING CASH FLOW
20
MARKET SHARE %
uPby
3.8%
DIVIDENDS PER SHARE
(cents)
DIvIDENDS
MARKET SHARE %
pEr SharE
27
80
70
60
50
40
30
20
.
0
7
1
10
.
0
1
2
.
0
4
2
.
0
6
2
0
07
08
09
10
11
COST OF DOING BUSINESS
hiGh
payout
(%)
COST OF DOING BUSINESS
DIvIDEND
DIVIDEND PAYOUT RATIO
payOUT raTIO
80.9
300
250
200
150
100
downby
16.0bPs
(%)
COST OF DOING
COST OF DOING BUSINESS
BUSINESS/
WHOLESALE SALES
GrOSS prOFIT
62.7
15000
12000
37
300
250
200
0
150
100
50
0
12000
3000
.
9
5
6
9000
0
08
.
9
6
6
07
6000
3000
0
uPby
9.2%
EBITA
15
20
10
20
5
15
0
10
5
.
1
3
3
3
30
25
20
15
10
5
0
.
7
0
1
3
07
50
40
80
30
70
20
60
10
50
0
40
30
20
10
.
4
7
9
1
0
.
6
8
5
1
90
72
54
36
18
0
($m)
EBITa
438
.
3
1
7
3
.
2
1
0
4
0
08
09
10
11
80
uPby
6.1%
PROFIT AFTER TAX
60
70
($m)
prOFIT
aFTEr Tax
241.4
TOTAL SALES REVENUE
MARKET SHARE %
COST OF DOING BUSINESS
OPERATING CASH FLOW
.
5
2
0
2
.
6
7
2
2
.
0
1
7
50
.
6
0
8
.
2
1
8
.
2
1
8
07
08
09
10
11
0
07
08
09
10
11
(1) Refer to Additional Financial Information on page 40.
EARNINGS PER SHARE
DIVIDENDS PER SHARE
30
25
20
15
10
5
0
3000
0
uPby
7.4%
TOTAL REVENUE
($m)
TOTal rEvENUE
12,461.6
PROFIT AFTER TAX
TOTAL REVENUE
.
9
5
6
7
9
,
.
4
2
0
2
0
1
,
.
5
7
6
0
1
1
,
.
1
8
0
6
1
1
,
07
08
09
10
11
WHOLESALE SALES
uPby
7.4%
EARNINGS PER SHARE
WHOLESALE SALES
($m)
WhOlESalE
SalES
12,364
.
1
1
5
4
9
.
0
5
4
0
0
1
,
.
0
4
7
9
0
1
,
.
4
7
1
5
1
1
,
07
08
09
10
11
EBITA
uPby
4.7%
EBITA
NET ASSETS
($m)
NET aSSETS
1,442.8
.
2
0
8
1
1
,
.
7
9
3
2
1
,
.
4
9
7
2
1
,
.
6
7
7
3
1
,
07
08
09
10
11
80
70
15000
60
12000
50
40
9000
30
6000
20
10
3000
0
0
500
400
300
200
100
0
250
200
150
100
50
0
35
30
25
20
15
10
5
0
M E T C A S H A N N U A L R E P O R T 2 0 1 1
7
TOTAL
REVENUE
Up BY
7.4% TO
12,462
MiLLiON
DOLLARs
8
F I N A N C I A L R E V I E W C O N T I N U E D
THE gROUp HAS
pAiD OUT
81% hiGh
UNdERLYiNg(1)
EARNiNgS
dividend
PAyout
rAtio
capital position. Net working capital
increased by $178 million over the
prior period, driven largely by the
inventory levels, some what offset by
increases in trade payables and also
impacted by reductions in employee
entitlements due to payments of long
and short term incentives for 2010.
Trade receivables showed an overall
reduction of two days outstanding,
due to good collection results and
the continued growth in the American
Express payment facility used by
our customers.
The Group has drawn down an
additional $136 million in net debt
during the period, primarily due to
the working capital increases noted
above, but also to fund ongoing
investment in the supply chain and to
further strengthen the retailer network.
Group continues to maintain a strong
balance sheet, adequate funding
capacity and is well placed for future
growth and expansion.
Cash Flow
Cash flow generation from operations
continued to be strong at $303 million
for the year. However, the temporary
working capital requirements at
balance date, as noted above,
reduced the net cash flows for the
period to $142.5 million.
Metcash maintains its focus on
reinvestment and the modernising
of the independents’ support
structures and supply chain, with a
total of $82.3 million being invested
in capital expenditure, business
acquisition and loans to customers
for expansion activities.
The Group has maintained its high
dividend payout ratio of recent years
by once again paying out in excess
of 80% of underlying(1) earnings per
share. Total dividend payments for the
year amounted to $199.4 million.
The 2011 financial year of the Group
has seen a continuation of the difficult
economic conditions experienced in
the post-GFC economy. The trading
environment has been characterised
by ongoing deflationary impacts in the
sector, coupled with a more cautious
and value driven consumer and a
season of summer weather conditions
across the country not witnessed for
over 30 years.
In spite of these conditions, the Group
has continued to record positive sales
growth, with total sales growing by
7.4%. ‘Like for like’(1) sales represented
a 5.2% increase on the prior year. This
clearly demonstrates the resilience of
both the Metcash business model and
the independent retailers.
On 1 July 2010, the Group announced
its plan to acquire the Franklins
supermarket business in NSW from
the South African based retailer Pick n
Pay. In November 2010, the Australian
Competition & Consumer Commission
announced that it would oppose the
Group’s planned acquisition and sought
an injunction against the transaction
proceeding. In conducting this action,
and in its preliminary negotiations with
Pick n Pay, the Group has incurred
$6.9 million in costs in the current year.
These costs have been disclosed as a
non-recurring item in the current year’s
income statement.
All divisions within the Group remain
focussed on improving operational
efficiency in the prevailing deflationary
environment. The Group has further
reduced its Cost of Doing Business
as a percentage of Gross Profit
by 16 basis points in the current
year, despite substantial increases
experienced in utility costs such
as electricity. The Group continues
to focus on making substantial
investment in modernising the
independent sector’s support
structures and supply chain.
As a result of these factors, the Group
was able to achieve its revised market
guidance, reporting underlying(1)
earnings per share of 33.4 cents,
an increase of 4.4% on the prior
year. A final dividend of 16 cents
per share was declared bringing the
total dividend declared for the 2011
financial year to 27 cents per share
fully franked.
Financial Position
The Easter trading period is one
of substantial business activity for
the Group. The timing of the Easter
trading period in late April 2011
coincided with the Group’s balance
date. This had the effect of requiring
abnormally large inventory levels to be
held for post Easter trading, thereby
impacting on the overall working
(1) Refer to Additional Financial Information on page 40.
M E T C A S H A N N U A L R E P O R T 2 0 1 1
9
Five yeAr
reView 11
10
09
08
Restated
07
Financial Performance
Sales ($m)
Earnings before interest and taxation ($m)
Interest, net ($m)
Operating profit before tax ($m)
Profit after tax ($m)
Financial Position
Metcash shareholder equity ($m)
Net tangible assets per share (cents)
Gearing (debt/debt+equity) (%)
Share Statistics
Fully paid ordinary shares
12,364.0
11,517.4
10,981.7
10,116.1
9,694.8
423.2
66.3
356.9
241.4
1,442.8
19.73
36.7
379.3
49.3
330.0
227.6
1,377.6
12.49
35.5
340.5
49.8
290.7
202.5
1,279.4
12.98
33.5
333.4
49.1
284.3
197.4
282.9
57.2
225.7
158.6
1,239.7
1,180.2
16.16
33.2
8.65
34.1
768,853,644
765,644,031
764,888,363
764,792,593
762,405,655
Weighted average ordinary shares
767,676,470
765,178,865
764,843,880
763,484,392
753,116,068
Earnings per share (cents)
Underlying(1) earnings per share (cents)
Dividends declared per share (cents)
31.5
33.4
27.0
29.7
32.0
26.0
26.5
29.5
24.0
25.9
26.1
21.0
21.1
22.8
17.0
Other Statistics
Number of employees
(full-time equivalents)
5,638
5,773
5,358
5,056
5,855
10
R E V I E W O F O P E R A T I O N S
review oF
operations
IGA Distribution
IGA Fresh
Australian Liquor Marketers
Major Activities
› Marketing and distribution specialists supplying
IGA branded, FoodWorks and non-branded
independent grocery stores in New South
Wales, the Australian Capital Territory,
Victoria, Queensland, South Australia and
Western Australia.
› Operates out of six major distribution centres
and eight dedicated fresh produce warehouses
across Australia.
› Provides expertise tailored to independent
retailers’ requirements, with a range of
marketing, merchandising, buying, operational
and distribution services.
Significant Achievements
› Wholesale Sales up 6.0% to $7.6 billion.
› EBITA up 4.4% to $361.8 million.
›
‘How the locals like it’ – a cultural shift to focus
on local consumer needs.
› Success of ‘Locked Down Low Prices’ program
which continues to provide consumer savings
and to keep independents competitive.
Future Direction
› Ensuring our promotional offer continues to
provide value to our retailers’ customers.
› Building IGA brand equity and ensuring
three tier brand clarity.
› Growing the retail area through new stores,
conversions and extensions.
› Buy-back and the resale of underperforming
independent stores to proven IGA retailers.
›
Investment in a new mega distribution centre
in New South Wales to improve efficiency and
reduce the cost of doing business at both
wholesale and retail levels.
(1) Refer to Additional Financial Information on page 40.
Major Activities
›
Fresh food innovation and product
development.
› Develop strategic supplier partnerships 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.
Significant Achievements
›
Invested in warehouse modernisation –
Cairns Fresh warehouse and Canning Vale,
WA facilities completed.
› Recovery from Queensland floods and cyclone.
› Continued rapid sales growth.
› Produce warehouses now fully integrated into
Metcash systems.
Future Direction
›
Innovative, differentiated service for both
individual and multi-store owners.
› Drive profitable sales through improved
produce platform.
Major Activities
› Broad range liquor wholesaler supplying over
15,000 hotels, liquor stores, restaurants and
other licensed premises throughout Australia
and in New Zealand.
› Australia’s biggest liquor wholesaler, and
through the independent liquor network
operating under Independent Brands Australia,
is the second largest liquor retailer in Australia.
› Operates out of 15 distribution centres
throughout Australia and in 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.
Significant Achievements
›
‘Like for like’(1) sales growth up 2.7% and
‘like for like’(1) EBITA growth up 20.4%.
›
Independents Brands Australia (IBA) retail
outlets grew sales with IGA Liquor performing
strongly.
› Establish a ‘retail ready’ meat program on
› Win-back strategy for the ‘on-premise’ market
the east coast.
continuing to gain momentum.
Future Direction
› Continue to grow IBA and Liquor Alliance store
numbers.
›
Improve store standards and refurbish stores.
› Beer volume growth – one stop supply to the
Independent channel.
› Make further progress to win back the
‘on-premise’ market.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 11
Campbells Wholesale
Mitre 10
Major Activities
› Primarily focused on the convenience, route
Future Direction
› 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 450
by the end of FY 2012.
› Continued growth in confectionery markets.
› Continuing to expand the foodservice
operations of the business.
›
Format innovation – Lucky 7 Ezy format
trial underway.
and hospitality channels of trade.
› Services customers who require a total supply
solution across a broad range of fast moving
consumer goods.
› Campbells Wholesale has national service
and distribution through 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, confectionery, tobacco, liquor,
soft drinks, foodservice and general
merchandising products.
› C-Store Distribution provides a total supply
solution to the modern petrol and
convenience sector.
›
Two FoodLink Foodservice businesses in
Western Australia and Queensland providing
the leading distribution solution to the
foodservice industry.
Significant Achievements
›
‘Like for like’(1) sales up 4.7% to $1.71 billion.
› EBITA up 10.3% to $31.8 million.
› Successfully completed Project Streamline,
rationalising its network of branches while
maintaining high customer retention rates.
› Supply to 130 Mobil sites acquired by 7-Eleven.
Major Activities
›
Independent home improvement and hardware
wholesaler with an independent retail network
of 420 Mitre 10 and True Value Hardware
stores nationally.
› Operates out of four warehouses across
Australia.
› Provides expertise tailored to independent
retailers’ requirements, with a range of
marketing, merchandising, buying, operational
and distribution services.
Significant Achievements
› Sales of $797.6 million.
› EBITA of $20.7 million.
› Management continued to work on executing
the strategic plan developed early in the
initial phase post-acquisition with the
following results:
- Stabilised store network;
- Extended product ranges to meet customer
needs;
- Focused on brand essence of being
‘Mighty Helpful’;
- Improved merchandise and marketing
programs; and
- Commenced supply chain modernisation.
Future Direction
› Grow the store network.
› Complete brand harmonisation.
›
Improve store standards and execution at
store level.
› Continue to modernise the supply chain.
› Continue to improve the merchandise strategies
and range.
› Continue to grow the Mitre 10 brand.
12
I G A D I S T R I B U T I O N
iGA
distribution
Doing business ‘How the
locals like it’ has been
instrumental in delivering
sales growth despite
the tough operating
conditions.
IGA Distribution (IGA>D) performed
strongly in the past year despite
the challenging prevailing
conditions. Sales rose by 6% and
EBITA grew 4.4% in the face of
persistent deflation across many
grocery product categories and
an increasingly value-oriented
consumer. This result was
underpinned by 4.5% comparative
store sales growth.
IGA>D continued work to improve
different facets of its operations
to ensure its independent retailer
customers receive quality products
and services. Continued investment
in improving the supply chain and
strategies to restrict costs helped
achieve the strong result.
How the Locals Like It
IGA>D and its independent retailers
are committed to doing business
‘How the locals like it’. Launched in
July 2010, the ‘How the locals like it’
tagline has grown into the prevailing
IGA culture. ‘How the locals
like it’ defines how independent
retail stores operate and IGA>D
works with its retailers to attain
differentiated customer category
management in each IGA store
across Australia. Born out of our
successful ‘Local Heroes’ campaign,
‘How the locals like it’ empowers
IGA>D and IGA stores to deliver
product ranges that are tailored to
consumers within their community.
Doing business ‘How the locals like
it’ has been instrumental in delivering
sales growth despite the tough
operating conditions.
Locked Down Low Prices
Our ‘Locked Down Low Prices’
program has become entrenched
in our national sales programs. We
continue to maintain key product lines
under the ‘Locked Down Low Prices’
range to meet the needs of value-
conscious consumers. ‘Locked Down
Low Prices’ signifies our commitment
and reward to loyal consumers and
assures them that we will continue to
drive prices down and make shopping
better value in our IGA stores.
Retail Business
Development
The 2011 financial year again
generated strong new independent
store growth with 65 new stores
adding 56,925 square metres to the
independent store network. This
represented an increase of 12 stores
and nearly 20,000 square metres on
the prior year. A further 26 stores,
representing 17,115 square metres,
were converted to branded stores
from non-IGA related brands. Of
these, 17 stores joined the IGA brand.
The activity resulted in a total new
stores count for the year of 91 sites. A
further 61 sites were refurbished and /
or extended during the year.
IGA>D also instigated a store
‘buy-back’ and ‘re-sale’ program to
accelerate the rate of refurbishment
and store improvement across the
network. This program encourages
the transfer of store ownership to
a new IGA retailer and promotes
re-investment in stores to modernise
the retail offer. During the year,
15 stores were transferred to new
retailers and these stores showed
post redevelopment uplift in retail and
warehouse sales of more than 20%.
Currently 80 sites are targeted across
the country.
Project Lion
Project Lion (Leadership, Innovation,
Ownership and Negotiation) has
continued to yield results for the
business. Project Lion was established
in early 2008 to facilitate goal-sharing
and communication between IGA>D
and IGA independent retailers.
Retail analytics assists both IGA
independent retailers and IGA>D to
identify opportunities to generate
sales growth. IGA>D’s retail analytics
process identified ranging gaps at
retail level. Rectifying these gaps
will increase retail turnover for our
customers and in turn improve
IGA>D sales.
The cost of doing business (CODB)
program is in its second year and
independent retailers continue to
identify and implement strategies to
reduce their CODB. The focus for
the coming year is to increase the
number of CODB retailer focus groups
who work together to identify cost
reduction opportunities for individual
retailers or the collective.
Year two of the Lion rebate program,
designed to reward retailer behaviour
that protects and improves the IGA
network, has seen an increase in
participation by 39% on the prior year.
The program is rewarding retailers
for improved retail standards and
compliance. These improvements
result in increased retail sales for the
IGA retailer and improved wholesale
volume for IGA>D.
Retail Initiatives
As customers are increasingly
reliant on web-enabled and digital
technology, IGA>D continues to
develop IGA’s online presence and
digital capabilities. IGA customers
can now access store locations,
catalogues and recipes and create
shopping lists using iPhone and iPad
applications. This heralds an exciting
phase for the IGA family and its
customers.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 13
TOTal SalES
uPby
6.0%
($m)
TOTal SalES
7,559.9
.
8
1
8
6
6
,
.
9
9
2
1
7
,
.
2
4
2
8
5
,
.
0
6
6
0
6
,
07
08
09
10
11
($m)
EBITa
361.8
.
3
7
4
2
.
1
5
7
2
.
5
5
1
3
.
6
6
4
3
07
08
09
10
11
FOOD DISTRIBUTION — TOTAL SALES
FOOD DISTRIBUTION — TOTAL SALES
8000
8000
0
0
FOOD DISTRIBUTION — REPORTED RESULT
FOOD DISTRIBUTION — REPORTED RESULT
400
350
400
300
350
250
300
200
250
150
200
100
150
50
100
0
50
65NEw
0
STORES A D D I N G 56,925 s qm
T O ThE I N D EpE N D E N T S T O R E
N E T W O Rk
14
I G A D I S T R I B U T I O N C O N T I N U E D
iGAFresh
In its third year of operation, IGA
Fresh has continued to integrate and
develop its service across all areas
of fresh food to better support the
independent retailers’ local fresh
food offer. Key successes include
the full integration of the produce
warehouses’ IT systems, integration
of the retail specialist team and
further category innovation in the
meat, delicatessen and bakery
product ranges.
Full integration of the
produce warehouses’ IT
systems, integration of
the retail specialist team
and further category
innovation in the meat,
delicatessen and bakery
product ranges.
Meat
Meat operations had an excellent year,
with strong sales growth and a range
of improvements available to our retail
customers. A key focus has been the
development of a combined meat
processing facility in Western Australia
– merging our two existing facilities
and providing a full service solution
to IGA retailers using cutting edge
production technology. The new meat
processing facility was commissioned
post year end. The private label meat
range provides increased profitability
to retailers with 182 products now
available.
Delicatessen
Delicatessen sales continue to
increase strongly year on year, with
a great deal of product innovation
through the year. A number of
suppliers have moved from supplying
direct to store to supplying via the
IGA>D warehouse due to efficiencies
offered by Metcash in consolidating
deliveries to independent stores. This
trend looks set to continue in 2012.
The ‘deli’ team has also employed
account specialists to provide
specialised category management
services to retailers.
Produce
This was a challenging year with
the continuation of a long-term
deflationary cycle in the first half and
a second half defined by floods that
submerged the Rocklea produce
warehouse and Cyclone Yasi
decimating banana crops. These
events led to a significant change in
purchasing behaviour at store level
across Australia with a short term
price impact.
IGA Fresh in Queensland was able
to respond rapidly to the flooding at
Rocklea with an immediate move
to a satellite warehouse resulting in
almost no supply stoppages. Within
four days, a replacement facility was
operating and able to supply the total
Queensland customer base. This rapid
response mirrored the spectacular
efforts of our retailers to support
their communities, and highlighted
to those retailers the support a
Metcash-backed produce wholesaler
can provide.
The integration of the produce
warehouses into Metcash systems is
now complete, with benefits including
national buying opportunities and
improved management reporting
available to each site. With over
300 products available under our
private label brand and a strong
promotional program in place, retailers
are well positioned to provide their
consumers with quality products at
competitive prices.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 15
iGA Fresh
TEAmS ARE
COmmiTTEd
T O D E L IvE R I N G A N
improved
C O MpE T I T IvE O F F E R I N G.
IGA>D and IGA Fresh
management is committed
to championing the
independent retailers
it serves.
What the Future Holds
IGA>D and IGA Fresh management
is committed to championing the
independent retailers it serves. While
we expect the business environment
to remain challenging, our core
strengths and competencies – our
people, logistics, commercial strength
and business model – remain the
backbone of our operations. These
have and will continue to enable us to
take on opportunities for value growth.
We recognise the contribution of
our people and our commitment
to staff is unwavering. We continue
to up-skill our people at all levels of
the organisation through in-house
development and training. Where
necessary, we use external specialists
to provide the necessary skills and
competencies. This continuous
improvement process helps ensure
we are well positioned to meet
the challenges of the changing
operating environment.
Logistical excellence continues to
be a core business strength and
underpins how we operate. Our
national distribution centre (NDC) for
‘slow moving’ ranges located at our
Laverton distribution centre in Victoria,
was developed to improve our ranging
options. A significant investment, the
NDC is meeting our operational goals,
enabling an improved width of range
to our customers across Australia.
Our new meat processing facility
in Western Australia will enable us
to provide a full service solution to
independent retailers.
IGA>D will continue to invest in
strategies that protect independent
retailers and ensure their growth.
These initiatives include direct
investments in developing ‘greenfield’
sites, facilitating the store ‘buy-back’
and ‘re-sale’ program and maintaining
our institutional advertising spend to
further build the IGA brand.
16
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
AustrAliAn
liquor
Marketers
Our focus on strong
marketing, improving
retail standards and
continually improving
support from our
suppliers resulted in
another strong year for
IBA and ALM.
The 2011 financial year was another
difficult trading period for the
Australian liquor market. According
to latest available market statistics,
packaged liquor sales volumes
continued to decline and this, coupled
with severe weather conditions
experienced in many of our key
markets, impacted on overall growth.
That said, by staying true to the
Independent Brands Australia (IBA)
retail model, sales in ALM showed
continued growth despite this overall
market decline.
ALM achieved sales growth on a
‘like for like’(1) basis of 2.7% and
‘like for like’(1) EBITA growth of
20.4%. Sales through our key retail
brands continued to outperform the
overall market. Our focus on strong
marketing, improving retail standards
and support from our suppliers
resulted in another strong year for IBA
and ALM.
Tasman Liquor, our New Zealand
business, performed solidly during
the year in what was a difficult
environment and, following our
restructure in 2010, the business
performed above expectations.
Our strategy to win back sales
to our ‘on-premise’ customers is
showing strong growth against other
competitors and this strategy will
continue to be expanded during the
first half of next financial year.
Independent Brands Australia
(IBA)
IBA continued to lead the way for
the independent banner groups in
Australia. Management continued its
strategy of working to lift the retail
standards of the entire IBA network.
This strategy resulted in a great
improvement in the quality of stores
over the last year.
ALM has a long history of supporting
independent liquor retailers in Australia
and with the continued success of
IBA and our strong relationship with
our external customer groups we
see independent retailers continuing
to perform strongly in what is likely
to continue to be a very difficult
trading environment.
(1) Refer to Additional Financial Information on page 40.
Investment in Infrastructure to
Support independent Retailers
During the year, ALM continued its
investment in infrastructure to support
independent liquor retailers in Australia
with the opening of a purpose-built
distribution centre in Perth, Western
Australia. The second half of next
year will see us move into the new
distribution facility in Huntingwood,
New South Wales reinforcing our
commitment to invest in independent
liquor retailers in Australia. We also
continued the roll-out of a fit-for-
purpose warehouse management
software solution with our Cairns
warehouse going live pre-Christmas
2010. Radio frequency receiving
is now used across all our major
Australian distribution centres and
management is constantly seeking
new initiatives to reduce our overall
cost of doing business.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 17
LIQUOR DISTRIBUTION — TOTAL SALES
LIQUOR DISTRIBUTION — TOTAL SALES
3000
2500
3000
2000
2500
1500
2000
1000
1500
500
1000
0
500
0
LIQUOR DISTRIBUTION — REPORTED RESULT
LIQUOR DISTRIBUTION — REPORTED RESULT
40
35
40
30
35
25
30
20
25
15
20
10
15
5
10
0
5
TOTal SalES
‘lIKE FOr lIKE‘(1)
uPby
2.7%
($m)
TOTal SalES
2,296.6
.
4
9
3
6
2
,
.
6
0
4
6
2
,
.
3
9
9
4
2
,
.
2
3
5
4
2
,
07
08
09
10
11
($m)
EBITa
30.1
.
4
8
2
.
2
1
3
.
8
3
3
.
1
6
3
07
08
09
10
11
0
inCreAsed
ALm
LiKE fOR LiKE (1)
SALES
ShO W E D CO N T I NuE D
GroWTH D E SpI T E ThE
M A RkE T D E C L I N E
$
18
C A M P B E L L ’ S W H O L E S A L E
customer having multiple deliveries
from different vendors.
CSD continues to gain efficiencies
through better logistics practices,
while supply chain costs continue to
be reduced through investment in
logistics technology.
FoodLink is a specialist foodservice
distributor in Perth (WA) and Brisbane
(Qld). FoodLink supplies foodservice
providers, mining sites, franchised
quick service restaurants and the
general ‘free trade’ (independent
restaurants, takeaway operators,
pubs and clubs) with all their catering
needs. FoodLink prides itself on
excellent service delivery to its diverse
customer base.
As the resource sector has improved,
FoodLink’s growth improved and we
anticipate good future growth.
‘Lucky 7’ Convenience
Brand
Lucky 7 is an independent
convenience store brand developed
by Campbells Wholesale. Lucky 7 has
360 branded sites across Australia
generating over $380 million in retail
sales annually.
Stores operating under the Lucky 7
brand are independent stores, locally
owned and operated. 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 450 in the next year.
Recently, Lucky 7 also launched
Lucky 7 Ezy, a concept designed
to benefit customers who have the
available foot traffic to expose a core
range of convenience products to
their consumers.
CAmPbells
wholesale
Despite a challenging
retail sales environment,
especially in the
convenience sector,
Campbells is expected
to continue to deliver
profitable growth.
Campbells Wholesale performed
solidly, with sales increasing on a ‘like
for like’(1) basis by 4.7% to $1.71 billion
and EBITA increasing by 10.3 % to
$31.8 million.
During the year, under Project
Streamline, management created
the Campbells Wholesale Division
by combining the previously distinct
traditional cash and carry business
with the wholesale distribution
business. This initiative was required to
ensure that Campbells could provide
a unique and flexible service to its
small business and convenience store
operators. The process was managed
effectively resulting in significant cost
savings to the business. Service
from existing outlets helped achieve
good customer retention from the
rationalised branches.
Campbells Wholesale now operates
three divisions, each tailored to meet
the respective service requirements of
its consumer markets.
Our Divisions
Campbells Wholesale (Campbells) is
the main division of the business, with
31 branches in major metropolitan and
regional centres. Campbells operates
a hybrid model combining cash and
carry operations (self service) and a full
pick, pack and delivery service.
Campbells has a diverse customer
base represented by traditional
independent convenience store
owners, quick service restaurants
and takeaway outlets and other
hospitality focussed customers.
Campbells offers a wide range of
products in grocery, confectionery,
tobacco, liquor, foodservice and
general merchandise as a total supply
solution to its customers. A major
competitive advantage is the ability to
deliver flexible and frequent deliveries
to meet its customers’ total range
needs. The division continues to enjoy
solid growth in confectionery and
foodservice through its respective
Sweetspot® and Catering Connection®
strategies.
C-Store Distribution (CSD)
consists of five branches in the major
metropolitan cities. CSD specialises in
servicing the organised convenience
sector including modern petrol and
convenience stores run by major
petroleum companies in Australia.
During the year, CSD benefitted from
increased trade with 7-Eleven following
7-Eleven’s acquisition of Mobil service
stations. 7-Eleven is in the process
of rebranding the Mobil sites. Once
the conversions are completed, CSD
anticipates revenue uplift in the region
of $140 million per annum.
The organised convenience sector
derives major benefit from using
the efficient supply chain CSD
provides, which is unmatched in
the industry. CSD combines unit
picking and full case picking with
a commitment to 24 or 48 hour
turnaround depending on customer
need. CSD’s total supply solution
means customers’ requirements are
met in a single delivery, in full and
on time. This solution eradicates
the inefficiencies associated with a
(1) Refer to Additional Financial Information on page 40.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 19
TOTal SalES
‘lIKE FOr lIKE‘(1)
uPby
4.7%
($m)
TOTal SalES
1,709.9
.
4
7
1
4
1
,
.
8
0
5
5
1
,
.
4
0
6
6
1
,
.
3
5
8
6
1
,
07
08
09
10
11
($m)
EBITa
31.8
.
8
8
2
09
10
11
CASH & CARRY DISTRIBUTION — TOTAL SALES
CASH & CARRY DISTRIBUTION — TOTAL SALES
2000
2000
1500
1500
1000
1000
500
500
0
0
CASH & CARRY DISTRIBUTION — REPORTED RESULT
CASH & CARRY DISTRIBUTION — REPORTED RESULT
35
30
35
25
30
20
25
15
20
10
15
5
10
0
5
.
0
3
3
.
.
0
08
07
9
8
2
6
0
3
$
10.3%
iNCREASE iN
CAmpBELLS’
EBiTA
T O A T O T A L O F
$31.8 M I L L I O N
20
M I T R E 1 0
mitre10
Rebuilding the Mitre 10
brand has also been a
key plank of our strategy
in the 2011 financial
year. We have focussed
on brand harmonisation
to ensure consistency
in branding as well as
marketing to improve
brand awareness.
Mitre 10 made a strong contribution
in its first full 12 months as part of the
Metcash group, with sales of $797.6
million and EBITA of $20.7 million.
Pleasingly, many of the initiatives in
our two year turnaround strategy
known as ‘Change the Game’ are now
gaining traction.
Retain and Grow Store
Network
Following a number of years of store
losses, the Mitre 10 independent store
network has been stabilised and now
consists of 420 stores. Mitre 10 is
attracting new retailers to the brand
with 15 new stores joining the brand in
the past six months.
Brand Harmonisation and
Brand Awareness
Rebuilding the Mitre 10 brand has
also been a key plank of our strategy
in the 2011 financial year. We have
focussed on brand harmonisation
to ensure consistency in branding
as well as marketing to improve
brand awareness.
Branding compliance increased
significantly, with 50% of independent
retail stores now ‘Blue & White’
compliant up from 20%. Commitments
have been obtained from store owners
for 80% of stores to be compliant by
the end of 2012.
Marketing awareness around our
‘Mighty Helpful’ brand essence is
growing due to two key broadcast
initiatives. Our new TV campaign
features a local TV personality and
home improvement expert as the
face of Mitre 10. Additionally, Mitre 10
is sponsoring a home improvement
TV program which commenced in
June 2011.
Supply Chain
Warehouse productivity for Mitre 10
will continue to improve in line with
existing standards in other areas of
Metcash. The process of introducing
engineered standards into the four
distribution centres and refining the
existing IT platform continues.
Work on a National Distribution
Centre (NDC) for slow moving stock
is nearing completion. The NDC
will enable us to free up space and
drive greater efficiencies in our state
distribution centres.
Merchandising
We launched our new merchandise
program during the 2011 financial
year. An expanded product range
of 3,000 stock keeping units was
rolled out to meet retailer and end-
consumer needs.
A ‘Locked Down Low Prices’ program
was introduced in March 2011 and
reflects our commitment to provide
our retailer customers and consumers
with competitive prices.
A new catalogue program commences
in July 2011. The revamped catalogue
aligns our Mitre 10 brand’s ‘Mighty
Helpful’ tagline and local community
focus with our catalogue promotions.
Initial customer feedback has been
extremely positive. The catalogues
will also augment the ‘Locked Down
Low Prices’ program and promote our
specialty hardware products. We are
pleased to offer independent hardware
retailers and consumers access to
improved promotions.
We expect the hardware industry
to go through significant change in
the next 12 months and Mitre 10 is
in great shape to take advantage of
opportunities as they arise. We have
enjoyed considerable success from
our turnaround initiatives described
previously. We will continue to focus
on these turnaround initiatives,
although areas of emphasis are
likely to shift to suit the needs of our
business and independent hardware
retailers. We have an unwavering
commitment to the independent
hardware sector as the only true
independent hardware retail network
in Australia.
As a wholesaler to the industry, we
will not compete directly with our own
network. Management is working on
strategies to keep Mitre 10 nimble
and able to respond quickly and
help to protect the independent
retailer network and its members
from competition.
An iconic Australian brand, Mitre
10 has entered an exciting new
phase, and now has the foundation
to successfully compete in the
hardware industry.
Independence is worth
fighting for.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 21
3,000
pROdUCT RANgE
ExpANSiON
M E E T I N G
reT ailer & con sumer
N E E D S
22
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
CorPorAte
social
responsibility
Metcash strives to conduct business
in a socially responsible manner. Our
business success is linked to the
way we operate sustainably. Social,
economic, environmental and ethical
considerations are embedded in
all we do.
The Metcash Sustainability
Committee, comprising the CEO
and key senior management, has
formally adopted a suite of policies
and procedures to guide sustainability
initiatives and improve planning.
Our people are
the foundation of
our organisation.
Responsibility and
personal accountability
are core values that
drive our people.
Our People
Our people are the foundation of
our organisation. Responsibility and
personal accountability are core
values that drive our people. Our
employees are supported through
talent management, leadership
development, employee engagement
and workplace relations.
Talent Management
A key business priority is to attract,
develop and retain high calibre
staff. In 2010, Metcash introduced
a mandatory online assessment
tool to help improve the quality of
candidates. Managers receive ongoing
recruitment and selection training to
ensure recruitment is conducted with
consistency and fairness.
The Metcash Talent Management
Framework, an evaluation and
appraisal tool, was further
strengthened this year. Competencies
associated with different leadership
levels were simplified to enhance
the appraisal process and an
internal 360 degree process was
implemented to support senior
management development.
Succession planning processes
continue to identify top talent, with
individual development plans designed
for high potential employees.
Leadership Development
The company continues to develop
current and future leadership
capability. The Metcash Leadership
Academy offers employees access to
learning opportunities and programs at
all leadership levels. Programs include
the Diploma of Management, ‘LIFT’
Warehouse Leadership Program and
three Senior Management programs
that focus on managing operations,
projects and people. In December
2010, a pilot program for the
Advanced Diploma of Management
was completed.
Staff across the company can
participate in core level programs
and e-learning solutions. Employees
are also supported in completing
accredited vocational and tertiary
education through the Metcash
Employee Vocational Education
Sponsorship program (MEVES).
Employee Wellbeing
The Metcash Pro-fit programs,
introduced in 2005, continue to
support employee health and
wellbeing through a number of
initiatives including annual flu
vaccinations, employee counselling,
corporate gym membership and
health assessments. Camp Metcash,
a holiday program for the children of
staff, is also available.
To help staff enhance their work-life
balance, policies were introduced and
we took flexible working arrangements
into account. These included a
compressed working week, purchase
of additional annual leave and access
to part time employment.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 23
Diversity
Metcash actively seeks to provide
fair and equal opportunities to all
employees. Workplace diversity
and an updated equal opportunity
program are being finalised. A range
of programs will be implemented in
the 2012 financial year, specifically
designed to identify and develop
female talent.
Workplace Relations
During the 2011 financial year, 20
industrial agreements were negotiated
or re-negotiated (including two within
the new Mitre 10 business). There
was no work lost through industrial
activity. Metcash’s high levels of
customer service were maintained
during negotiations.
Metcash continues to apply a
fiscally responsible approach to
wage movements by budgeting for
increases the business can afford
and negotiating for productivity
improvements or reductions in the
cost of doing business, in order to
fund increases.
Health and Safety in
Our Workplaces
Metcash is strongly committed to
keeping its work environment safe
and promoting staff health. We
have a culture that is intolerant of
workplace injuries.
Metcash achieved significant
reductions in its key safety
performance measures in the 2011
financial year. The Lost Time Injury
Frequency Rate (LTIFR) and Lost Time
Injuries (LTI), improved by 18% and
14% respectively, representing three
years of sustained improvements. A
major reduction of 21% in the number
of workers compensation claims was
also achieved. However, average
workers compensation claim cost and
hours lost rose, due mainly to ongoing
claims inherited from new businesses.
The company will continue to work
to improve health, safety and injury
management metrics for these
new businesses.
Values are nothing
without integrity
Values
24
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 C O N T I N U E D
Five-year OHS Lag Indicators
2011
2010
2009
2008
2007
People
Lost time injury (LTI)
CASH & CARRY DISTRIBUTION — TOTAL SALES
Lost time injury frequency rate (LTIFR)(1)
209
21.3
244
25.9
273
30.8
275
27.3
317
25.7
Severity rate(2)
531.6
456.4
883.3
Key Health and Safety
Achievements
Key achievements during the 2011
financial year were:
› An increased focus on key risk
areas targeting mobile plant and
manual handling activities with site
reviews conducted at all locations;
› A significant reduction of our
50
› Developing and implementing
the Metcash Safety Excellence
Program, an internal Occupational
Health and Safety and Injury
Management audit program that
resulted in all Metcash sites being
audited during the financial year;
workers compensation premiums
in Victoria and a reduction in
the bank guarantee for our self
insurance licence in Western
CASH & CARRY DISTRIBUTION — REPORTED RESULT
Australia due to improved OHS and
injury management performance in
these two states; and
0
› Developing risk assessments and
safe operating procedures for
our new IGA Fresh meat facility in
Western Australia;
35
30
25
20
15
10
5
CASH & CARRY DISTRIBUTION — TOTAL SALES
› The introduction of a web-based
incident notification system
enabling timely reporting of
workplace incidents and the
identification of corrective actions
to prevent the reoccurrence of
similar incidents;
› The appointment of occupational
health nurses at all major
distribution centres resulting
in improved pre-employment
medicals for new employees and
as part of our early intervention
program providing timely
injury management support at
these sites;
350
300
250
200
150
100
0
350
300
250
200
150
100
50
0
30
25
Environment(3)
CO2 emission (Scope1&2)
2010
2009
tonnes
102,515
79,706
07
08
09
10
11
7
1
3
5
7
2
3
7
2
3
4
2
Waste to landfill
93,647
CASH & CARRY DISTRIBUTION — REPORTED RESULT
5,735
47,347
5,102
tonnes
tonnes
Recycling
Packaged food donated to Foodbank(4)
kg
254,630
N/A
Notes:
35
1. LTIFR is the number of lost time injuries per million hours worked.
2. Severity rate is the number of lost days per million hours worked.
3. Reporting period is the year to June.
4. Foodbank Australia is a not-for-profit, non-denominational organisation that seeks
20
and distributes food and grocery industry donations to welfare agencies which feed the hungry. Foodbank is
endorsed by the Australian Food and Grocery Council as the food industry’s preferred means of disposal of
surplus product.
10
15
5
0
down
by
18.0%
TOTal lTIFr
21.3
.
7
5
2
.
3
7
2
.
7
0
3
.
9
5
2
07
08
09
10
11
TOTal lTI
209
down
by
14.0%
M E T C A S H A N N U A L R E P O R T 2 0 1 1 25
Our Processes
Product Safety and Public
Health
Metcash continues to implement
systems that ensure its business pillars
comply with food safety and food
labeling legislation. Metcash assists
its independent retail customers with
training and implementation of retail
food safety programs.
A national ‘Approved Supplier
Program’ seeks to ensure all Metcash
branded products are supplied
under appropriate Supplied Quality
Assurance certification schemes using
safe and ethical methods. Private
label products operate under product
specification management and trade
measurement monitoring systems,
and are also subject to periodic
physical, chemical and microbiological
batch testing.
Food Safety Standards
Hazard Analysis and Critical Control
Points (HACCP) based food safety
programs are in place at all Metcash
warehouses. These food safety
programs are reviewed and certified to
HACCP standards by third parties. All
audits conducted during the past year
confirmed that Metcash sites continue
to operate within legislated food safety
standards with no critical or major
non-conformance.
Business Continuity
Management
Robust Business Continuity Programs
(BCP’s) are in place at each site.
Metcash continues to develop, review
and test existing site BCP’s as well as
establishing ‘Early Warning’ network
alerts. Response and recovery
procedures were effective during the
recent natural disasters experienced
in Queensland.
Enterprise Risk Management
Metcash’s approach to risk
management is guided by the
Australian/New Zealand risk
management standard AS/NZ
4360 (currently being aligned
to ISO 31000:2009) and other
applicable international standards.
The company’s Risk Management
Framework is integrated with day to
day activities and is supported by a
dedicated risk management team.
The Metcash Risk Management
Policy which is available on the
Corporate Governance section of
the Metcash website www.metcash.
com, formalises and communicates
the approach Metcash adopts to
manage risk.
Ongoing risk management activities
now include:
› Regular confirmation of key
controls via site attestations;
› Reporting key risk incidents at site
level in a centralised system;
› Recording and monitoring key risk
indicators (monitoring of residual
risk levels);
› Follow-up on risk treatment/action
plans;
› Escalation of issues;
› A Business and Ethics Policy
that empowers staff to ‘blow
the whistle’ on fraud, corruption
and illegal conducts using an
independent Ethics Hotline; and
› Regular reporting to senior
management and the Board.
Metcash has fully implemented its
risk oversight and risk management
reporting and compliance program
based on Risk Management Standard
AUS/NZ 4360.
The Environment
We strive to minimise our operational
impact on the environment, improve
business sustainability practices and
realise tangible resource efficiencies.
In 2010, Metcash was recognised
for its efforts by being listed on the
Carbon Disclosure Project Leaders’
Index with 30 other corporations.
Our Business Footprint
Energy and Water
Conservation
Metcash’s electricity and water
consumption, and carbon emissions
per employee increased in 2011 to
17,300 kWh, 20.3kL and 17.88 tonnes
respectively. Last year’s consumption
per employee was 14,534 kWh of
electricity, 14.87 tonnes of carbon
and 19.3kL of water. The modest rise
was due to the impact of the Mitre 10
acquisition.
Sustainable Workplaces and
Consolidated Logistics
A new distribution centre under
construction in Huntingwood, Western
Sydney is designed to achieve a
Four Green Star rating from the
Green Building Council of Australia’s
Industrial Design & As-Built tools.
As part of our energy performance
contract, installation of energy
and water saving initiatives have
commenced at our facility in South
Australia. These works are guaranteed
to reduce electricity consumption on
the site by 122,000 kWh and reduce
carbon emissions by 6% with a
6 year payback.
The company received a Federal
Government grant to install a 16.3
kW solar photovoltaic (pv) system
at its ALM Alice Springs facility. The
solar pv system is expected to reduce
electricity consumption onsite by 58%
with a 5 year payback.
Landfill and Recycling
Metcash continues to work to improve
recycling and reduce waste sent to
landfill. Recycling is encouraged at all
sites. The company donates usable
but not saleable packaged foods in
order of 250 tonnes to Foodbank
Australia (covered in more detail
under Community).
Staff Involvement
Metcash staff are encouraged to
participate in voluntary work with
site based ‘Green Teams’. These
teams meet regularly to identify and
implement projects to help Metcash
meet sustainability objectives.
26
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 C O N T I N U E D
From LeFt: Luke WestLey (Aussie AppLes), trAcy BevAn (mcGrAth FoundAtion), tim mAnic (iGA Fresh – QLd stAte produce mAnAGer).
Our Suppliers and
Products
We seek to encourage our suppliers
to support sustainable business
practices for food and packaging
products. Wherever possible, we aim
to supply products which are safe,
healthy, easy to use and reduce our
environmental impact.
Sustainable Business Practices
Metcash implemented a Sustainable
Supply Chain Management Program
based on world’s best practice, to
ensure suppliers meet our minimum
safety and ethical standards.
We are working with suppliers on
issues raised by consumers to ensure
our private label products are of the
highest quality.
Our supplier agreement and our
new Sustainable Supply Chain
Management Policy each require that
no genetically modified ingredients
be used in our private label products
(eg: IGA Signature and Black & Gold
brands) including food additives,
processing aids and enzymes.
Better Products
To assess the sustainability of the
packaging used on Metcash private
label products, we have integrated
the Australian Packaging Covenant’s
Sustainable Packaging Guidelines in
our design and ranging stages.
Stakeholder Engagement
We are participating in a multi-
stakeholder process to improve tuna
traceability throughout the supply
chain. Our IGA Signature and Black &
Gold canned tuna products are made
from the most sustainable tuna and
skipjack. More details are available at
www.iga.com.au. Metcash is a
member of the Roundtable on
Sustainable Palm Oil (RSPO), and has
embraced the Principles and Criteria
for Sustainable Palm Oil Production.
Our Customers
We are committed to meeting
our obligations to customers and
actively encouraging them to support
sustainable business practices for
food and packaging products.
Sustainability@Retail
Our Sustainability Team developed
Sustainability@Retail, a support
program specifically for IGA
independent retailers. Program
initiatives include carbon footprint
measurement, encouraging reduced
energy and water consumption,
and encouraging the use of solar
photovoltaic panels.
Many of the IGA independent
retailers continue their involvement
in Sustainability@Retail. More details
of the Sustainability@Retail program
can be found at www.iga.com.au.
Over the years, many IGA retailers
have independently decided to make
their stores ‘plastic bag free’ and
undertake environmentally beneficial
refurbishments.
Metcash offers product ranges with an
emphasis on ‘fair trade’ (fair work and
trade) practices.
HoW THe
locals like iT
igA
COmmUNiTY
SUppORT
M E T C A S H A N N U A L R E P O R T 2 0 1 1 27
From LeFt: Luke WestLey (Aussie AppLes), trAcy BevAn (mcGrAth FoundAtion), tim mAnic (iGA Fresh – QLd stAte produce mAnAGer).
iGA>d WArehouse stAFF LoAd emerGency suppLies on to A heLicopter At the heiGht oF the QueensLAnd FLood disAster. the heLicopter WAs Bound For An indiGenous community isoLAted By the FLoods.
IGA retailers have raised
in excess of $55,000,000
over the past nine
years through the IGA
Community Chest and
associated programs.
Two cents from every
sale of an IGA Signature
product, and one cent
from every Black &
Gold product, has been
collected and distributed
to over 7,000 local
community groups, not-
for-profit organisations
and other worthy causes.
Community
Metcash and our IGA independent
retailers continue to support the
communities in which we serve.
Two cents from every IGA Signature
product and one cent from every
Black & Gold product sold goes to
the IGA Community Chest. The IGA
Community Chest has raised in excess
of $55,000,000 over the past nine
years. These funds have supported
over 7,000 local community groups,
not-for-profit organisations and other
community causes.
Metcash staff support a number of
different charitable events each year,
including Pink Ribbon Day, Daffodil
Day, World’s Greatest Shave and
Movember, a charity event with
the aim of raising vital funds and
awareness for men’s health specifically
prostate cancer and depression in
men. This year, Metcash matched
employees’ contributions to
Movember to the tune of $5,000.
Metcash donates usable but
not saleable packaged foods to
Foodbank Australia, a not-for-profit,
non-denominational organisation
that seeks and distributes food and
grocery industry donations to welfare
agencies. Donations of 254 tonnes
were made in the last reporting period,
helping reduce landfill waste, related
fees and carbon emissions.
The IGA Spirit
Overcoming Adversity
The natural disasters of late December
2010 and early 2011 devastated many
local communities. Floods occurred in
Queensland and Victoria, Cyclone Yasi
affected Far North Queensland and
bushfires affected WA.
During the Queensland floods, over
50 independent stores were flooded
or closed. Metcash’s IGA Fresh
Queensland facility at Rocklea was
also inundated by flood waters.
IGA Distribution (IGA>D) worked to
assist retailers across the state to
support their local communities. The
business also worked closely with the
Queensland government and other
stakeholders to maintain supply of
essential provisions to communities
across the state. Army Hercules
aircraft and helicopters were used to
deliver stock to isolated communities.
Staff from various states volunteered
to assist retailer in cleaning up. Over
$714,000 was raised through the IGA
Flood Relief Program. This together
with donations and funds raised by
Metcash and IGA independent retailers
resulted in excess of $1 million being
raised. Many independent retailers
supported their communities with
further donations, food and shelter.
Supporting the
McGrath Foundation
Over the past 2 years, IGA has
rolled out more than four campaigns
raising over $120,000 to help fund
two McGrath IGA Breast Care
Nurse positions.
igA
COmmUNiTY
SUppORT
28
E X E C U T I V E T E A M
exeCutive
teaM
Andrew Reitzer
Adrian Gratwicke
Silvestro Morabito
ceo metcash Group of companies
Date of Appointment to metcash Limited:
18 April 2005.
Andrew Reitzer has 33 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.
chief Financial officer
An experienced finance professional, Adrian
Gratwicke brings over 23 years’ commercial and
industry experience to his recently appointed
position as Chief Financial Officer. Since joining
Metcash in April 1998, he has held several senior
roles including National Accounting Manager,
National Commercial Manager IGA Distribution,
General Manager Mergers & Acquisitions, Risk and
Investor Relations and General Manager Finance.
ceo iGA distribution
Silvestro Morabito has over 31 years experience
in grocery retailing both locally and internationally.
During his 15 years with Safeway in Victoria, he
held various senior positions in operations and
IT. Silvestro was then recruited by Dairy Farm
International and held senior management roles in
New Zealand and Singapore.
In 2005 he was appointed CEO of Action
Supermarkets overseeing the sale of the
supermarkets and the consolidation of the FAL
retail brands. He was then appointed General
Manager, WA, IGA Distribution. In February of 2010
Silvestro was appointed CEO of IGA Distribution.
Peter Dubbelman
Fergus Collins
Harry Rumpler
ceo campbells Wholesale
Appointed CEO of Campbells Wholesale in
June 1998, Peter Dubbelman has over 28
years’ experience in fast moving consumer
goods distribution primarily in multi-site
general management.
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.
ceo Australian Liquor marketers
Fergus Collins joined ALM in December 2001
as Commercial Manager Queensland and was
promoted to General Manager Queensland in
May 2004. He became General Manager,
Independent Brands Australia in July 2006. In
February 2007, he was appointed Chief Executive
Officer and is a graduate of the Metcash Executive
Leadership Program.
ceo iGA Fresh
Harry Rumpler has been involved in the retail
industry for 34 years, holding various positions with
both chain groups and suppliers. Over this period
Harry held positions within store operations and
buying, as well as merchandising and marketing
roles. Harry joined the Company in November 1997
as National Fresh Food Manager for Merchandise
and in 2005 was appointed to General Manager
IGAD Queensland. He was then appointed to
head up the new area of IGA Fresh as CEO in
November 2007.
ASSOCIATE DIPLOMA IN FOOD RETAILING (FIT) EXECUTIVE DIPLOMA IN RETAIL MANAGEMENT (ACFRS)BA (HONS), ACA, MBA B COMM MBLMBA (MELB)B COMM (HONS) (DUBLIN), B SC MGMT (IRELAND), MBA (UNIVERSITY OF QUEENSLAND) M E T C A S H A N N U A L R E P O R T 2 0 1 1 29
Ken Bean
Bernard J Hale
Mike Jablonski
chief executive, Group Logistics and
corporate development
Ken Bean has over 40 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.
chief information officer
Bernard Hale was formerly a Director of Metro
Cash and Carry Limited, South Africa. Bernard
has 36 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 in December 2002. Prior
to being appointed to his current role he served as
an Executive Director of Metcash Trading Limited.
Group merchandise director
Mike Jablonski has 39 years’ experience in
the food industry. Previous positions include
Merchandise Executive Foods of OK Bazaars;
Merchandise and Marketing Director of Score Food
Holdings Ltd; Deputy Group Merchandise Director
of Metro Cash and Carry Limited; Director of
Distribution and Retail Development of Metro Cash
and Carry Limited.
Mike is the Group Merchandise Director and is
responsible for the Group’s Merchandise, Supplier
relationships, and the income derived thereof.
David Johnston
Greg Watson
chief human resources officer
David Johnston joined Metcash in December
2001. With over 33 years experience in all facets
of Human Resources Management gained from
some of Australia’s and the world’s leading FMCG
organisations, David is responsible for enhancing
the human capital of Metcash through cultural,
leadership and people development.
General counsel and company secretary
Greg Watson joined Metcash in April 2005 as Legal
Counsel and was promoted to General Counsel
in February 2008. He was appointed Company
Secretary in December 2010.
Greg has 21 years professional and industry
experience initially in private legal practice, followed
by corporate legal counsel roles with multinational
FMCG organisations. Greg is a graduate of the
Metcash Executive Leadership Program.
MBA, GRAD DIP BUS, DIP ACCM BUS (EMPLOYMENT RELATIONS), FAHRI, JPB TH (CAN)LLM, Dip Law 30
B O A R D O F D I R E C T O R S
boArd oF
directors
Peter L Barnes
Carlos S Dos Santos
non-executive chairman
Date of Appointment to Metcash Limited: 18 April 2005
Member of the Remuneration & Nomination Committee
non-executive chairman (retired)
Date of Appointment to Metcash Limited: 18 April 2005
Member of the Remuneration & Nomination Committee
Peter Barnes is Chairman of Ansell Ltd, a Director
of News Corporation and Chairman of Samuel
Smith & Sons Pty Ltd. He also serves as Chairman
of the Melbourne Business School. Mr Barnes was
formerly an executive with Philip Morris International
Inc. and held several senior management positions
both here in Australia and overseas.
Peter was appointed Chairman of Metcash Limited
on 2 September 2010 and has been involved
with the Metcash business as a director since
November 1999.
Fiona Balfour
Mr dos Santos retired as a director of Metcash
Limited on 2 September 2010
Carlos dos Santos is a chartered accountant and
a director of various companies trading in Africa
and the Far East. He has had 42 years’ industry
experience and has been involved with the
Metcash business as a director since May 1998.
non-executive director
Date of Appointment to Metcash Limited: 16 November 2010
Member of the Remuneration & Nomination Committee
Fiona Balfour is a former Chief Information
Officer and Member of the Qantas Executive
Committee with responsibilities for information
technology, procurement, property and human
resource services for Qantas worldwide. Fiona was
subsequently Chief Information Officer of Telstra
and executive advisor at each of Medibank Private
and Link Market Services.
Fiona is an Independent Non-executive Director
of Salmat Limited, an Independent Non-executive
Director of TAL Australia, a Member of the
Information Technology Faculty Advisory Board
of Monash University and a Councillor of Knox
Grammar School. She is a Member and former
Councillor of Chief Executive Women; a former
Non-executive director of Societe Internationale
of Télécommunications Aéronautiques (SITA SC)
– Geneva, Switzerland; and former Trustee of the
National Breast Cancer Foundation.
Andrew Reitzer
ceo metcash Group of companies
Date of Appointment to Metcash Limited: 18 April 2005
Andrew Reitzer has 33 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.
Michael R Butler
non-executive director
Date of Appointment to Metcash Limited: 8 February 2007
Member of the Audit Risk & Compliance Committee
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 currently a director of N. M. Superannuation
Pty Ltd and AMP Superannuation Limited. He was
previously a Non-executive Director and Chairman
of various public and private companies.
BA (Hons), MBA, GRAD DIP InFoRMATIon MAnAGEMEnT, FAICD B COMMERCE (HONS), MBA CA (SA)B SC, MBA B COMM MBL M E T C A S H A N N U A L R E P O R T 2 0 1 1 31
Neil D Hamilton
Mike Jablonski
Edwin Jankelowitz
non-executive director
Date of Appointment to Metcash Limited: 7 February 2008
Chairman of the Remuneration & Nomination Committee
Neil Hamilton is based in Perth and Sydney
and has over 28 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.
Neil is Chairman of OZ Minerals Ltd and Miclyn
Express Offshore Limited. He was appointed
Chairman of the Remuneration & Nomination
Committee on 1 September 2010.
Group merchandise director (retired from Board)
Date of Appointment to Metcash Limited: 18 April 2005
non-executive director
Date of Appointment to Metcash Limited: 18 April 2005
Mike Jablonski has 39 years’ experience in
the food industry. Previous positions include
Merchandise Executive Foods of OK Bazaars;
Merchandise and Marketing Director of Score Food
Holdings Ltd; Deputy Group Merchandise Director
of Metro Cash and Carry Limited; Director of
Distribution and Retail Development of Metro Cash
and Carry Limited.
Mike is the Group Merchandise Director of
Metcash Limited and is responsible for the Group’s
Merchandise, Supplier relationships, and the
income derived thereof. He retired as a director of
Metcash Limited on 2 September 2010.
Edwin Jankelowitz qualified as a Chartered
Accountant (SA) in 1966 and spent 12 years with
Adcock Ingram Ltd – promoted over time to Group
Company Secretary and Finance Director.
After consulting in business management and tax
for three years, Edwin spent 14 years with Caxton
Ltd progressing from Finance Director to Managing
Director and Chairman before joining Metcash.
He has spent over 37 years in corporate offices of
listed companies and was a member of the Income
Tax Special Court in South Africa for 20 years.
Edwin was CFO of Metcash until January 2011 and
became a Non-executive Director on 1 April 2011.
Richard A Longes
V. Dudley Rubin
Greg Watson
non-executive director
Date of Appointment to Metcash Limited: 18 April 2005
Chairman of the Audit Risk & Compliance Committee
Solicitor (non-practising)
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.
Richard 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.
non-executive director
Date of Appointment to Metcash Limited: 18 April 2005
Member of the Audit Committee
Dudley Rubin is a chartered accountant and is a
director of various companies trading in Africa.
He has had 28 years’ industry experience and
has been involved with the Metcash business as
a director since May 1998.
General counsel and company secretary
Greg Watson joined Metcash in April 2005 as Legal
Counsel and was promoted to General Counsel
in February 2008. He was appointed Company
Secretary in December 2010.
Greg has 21 years professional and industry
experience initially in private legal practice, followed
by corporate legal counsel roles with multinational
FMCG organisations. Greg is a graduate of the
Metcash Executive Leadership Program.
BA (SYDNEY), LLB (SYDNEY), MBA (NSW)LLB (UWA) B COMM, CA (SA)CA (SA), H DIP BDP, MBABA, LLB, MBALLM, Dip Law 32
CORPORATE GOVERNANCE STATEMENT
The Directors of Metcash Limited (Metcash or the 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).
CHANGES TO CORPORATE GOVERNANCE PRINCIPLES
The Company notes that a number of changes to the Principles take effect from the first financial year commencing after 1 January 2011. While
compliance with those Principles is not obligatory for this financial year, the Company is implementing changes to ensure compliance at the earliest
opportunity with the ASX Corporate Governance Council’s recommendations to transition to the new Principles.
SUMMARY OF COMPLIANCE WITH PRINCIPLES AND RECOMMENDATIONS
The table below summarises the Company’s compliance with the Corporate Governance Council’s recommendations.
RECOMMENDATION
COMPLY
YES/ NO REFERENCE/ EXPLANATION
PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT
1.1 Companies should establish the functions reserved to the Board and those delegated to senior
Yes
Page 34
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
2.3
2.4
The Chair should be an Independent Director.
The roles of Chair and Chief Executive Officer should not be exercised by the same individual.
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 35
Page 35
Page 35
Page 36
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 www.metcash.com
›
›
›
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 diversity and disclose the policy or a summary of
N/A
that policy. The policy should include requirements for the Board to establish measurable objectives
for achieving gender diversity for the Board to assess annually both the objectives and progress in
achieving them.
Systems and processes are
in place to ensure compliance
when these recommendations
take effect next financial year
3.3 Companies should disclose in each annual report the measurable objectives for achieving gender diversity
set by the Board and in accordance with the diversity policy and progress towards achieving them.
3.4 Companies should disclose in each annual report the proportion of women employees in the whole
organisation, women in senior executive positions and on the Board.
3.5 Companies should provide the information indicated in the guide to reporting on Principle 3.
N/A
N/A
Yes
M E T C A S H A N N U A L R E P O R T 2 0 1 1 33
PRINCIPLE 4 – SAFEGUARD INTEGRITY IN FINANCIAL REPORTING
4.1
4.2
The Board should establish an Audit Committee.
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.
PRINCIPLE 5 – MAKE TIMELY AND BALANCED DISCLOSURE
Yes
Yes
Page 36
Page 36
Yes
Yes
Page 37
Website www.metcash.com
5.1 Companies should establish written policies designed to ensure compliance with ASX Listing Rule
Yes
Website www.metcash.com
disclosure requirements and to ensure accountability at a senior executive level for that compliance and
disclose those policies or a summary of those policies.
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
Yes
Page 38
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.
Yes
PRINCIPLE 7 – RECOGNISE AND MANAGE RISK
7.1 Companies should establish policies for the oversight and management of material business risks and
Yes
Page 38
disclose a summary of those policies.
7.2
7.3
The Board should require management to design and implement the risk management and internal
control system to manage the company’s material business risks and report to it on whether those risks
are being managed effectively. The Board should disclose that management has reported to it as to the
effectiveness of the Company’s management of its material business risks.
Yes
Page 39
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.
Yes
Page 39
7.4 Companies should provide the information indicated in the guide to reporting on Principle 7.
Yes
PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIBLY
8.1
8.2
The Board should establish a Remuneration Committee.
Yes
Page 40
The Remuneration Committee should be structured so that it:
›
›
›
consists of a majority of Independent Directors;
is chaired by an Independent Chair
has at least three members.
8.3 Companies should clearly distinguish the structure of Non-executive Directors’ remuneration from that of
Yes
Executive Directors and senior executives.
Refer to Remuneration
Report
8.4 Companies should provide the information indicated in the guide to reporting on Principle 8.
Yes
The Company’s policies and practices and their relationship to the Council’s recommendations are set out in more detail as follows.
34 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 C O N T I N U E D
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.
charting the direction, strategies and financial objectives of the Company;
The principal functions of the Board include:
›
› monitoring implementation of those strategies and the operational and financial performance and risk of each of the Company’s activities;
›
›
› monitoring compliance with legal regulatory requirements, including occupational health and safety laws, product safety and the protection of
reviewing major capital expenditure, acquisitions, divestments and funding;
reviewing performance, remuneration and succession of senior management;
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 & 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. During the 2011
financial year, the Chief Executive Officer’s performance was reviewed in accordance with the process specified above.
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 2011 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 its 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
& 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 & Compliance and Remuneration
& Nomination. They provide an external perspective and checks and balances for the interests of all shareholders.
The Board’s six Non-executive Directors (at the date of this report), Mr Barnes, Mr Butler, Mr Hamilton, Mr Longes, Mr Rubin and Mrs Balfour 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.
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.
›
›
›
M E T C A S H A N N U A L R E P O R T 2 0 1 1 35
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 following reasons.
›
None of the six Non-executive Directors are substantial shareholders of the Company or associated with a substantial shareholder of the Company
(holding 5% or more of the Company’s issued shares).
›
› Messrs Barnes, Butler, Hamilton and Longes and Mrs Balfour are not employed by, nor have they previously been employed by, the Company or
another group member. Mr Rubin was 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 Rubin remained as a Metcash Director. 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 his role as a Metoz employee did not put him in
a position of authority, responsibility, and/or directing the activities of Metcash itself and, that this fact, combined with the six year elapsed period are
important factors in determining his capacity to bring independent judgement to bear on Metcash Board deliberations. At all times, he has been a
Non-executive Director of Metcash. Given the specific facts of his situation, this test does not preclude him from being considered independent.
The Board considered all relevant factors and concluded that Mr Rubin is an Independent Director.
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. Mrs Balfour is a director of Salmat Limited.
All these organisations are suppliers to the Company under normal commercial terms and conditions. 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.
›
Non-executive Director
Mr Edwin Jankelowitz retired as an Executive Director of the Company on 31 March 2011 and remains a director of the Company from that date. The
Board considers Mr Jankelowitz to be a Non-executive Director and not an Independent Director.
Executive Directors
The Board has one Executive Director, Mr Andrew Reitzer. Mr Reitzer is the Company’s Chief Executive Officer.
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 Directors from seeking 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 Peter Barnes is considered by the Board to be an Independent Director.
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 & Nomination Committee.
Remuneration & Nomination Committee
The membership of the Remuneration & Nomination Committee consists of the Non-executive Independent Directors who are listed below, together
with details of their qualifications and attendance at meetings during the past financial year.
MEMbER
QuALIFICATIONS
N D Hamilton (c)
LLB
P L Barnes(1)
BComm (Hons), MBA
C S dos Santos(2)
CA (SA)
F E Balfour(3)
BA (Hons), MBA, Grad Dip IM FAICD
(c) Denotes the chairman of the committee
MEETINgS ELIgIbLE TO ATTEND
DuRINg 2011 FINANCIAL YEAR
MEETINgS ATTENDED DuRINg
2011 FINANCIAL YEAR
4
4
2
2
4
4
2
2
1 P L Barnes was Chairman of the Remuneration & Nomination Committee until 2 September 2010, when he assumed chairmanship of the Board of Directors.
N D Hamilton assumed committee chairmanship from that date.
2 C dos Santos retired from the Metcash Board on 2 September 2010.
3 F E Balfour was appointed to Metcash Board on 16 November 2010 and thereafter appointed to the Remuneration & Nomination Committee.
36 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 C O N T I N U E D
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;
administer the Metcash Employees Option Plan, the Metcash Performance Rights Plan, and exercise the Board’s discretionary power
when required;
advise the Board on directorship and Board Committee appointments, Board succession planning and performance of the CEO; and
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
Annual reviews of the Board, its Committees and Directors are performed using a self-evaluation questionnaire, with an independent review conducted
each third year using a recognised external Board Performance Consultant. This process was first adopted in 2008.
The self-evaluation questionnaire has been utilised for the 2009 and 2010 financial years and, accordingly, a recognised Board Performance Consultant
is conducting the 2011 financial year review.
The 2011 evaluation process is being managed by an external Board Performance Consultant on a confidential basis. Results of the externally produced
questionnaire and interviews with all Directors and several key management personnel will be provided by way of report to the Board in August 2011.
The Board expects to respond to the findings of the review during the second half of the 2011 calendar year.
The Directors agreed 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 are operating at a level that has surpassed the high level identified in the
2010 evaluation and that 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 functions and related 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 has a Business Conduct and Ethics Policy that seeks to encourage all staff and non employees to report any person suspected of poor
business conduct and ethical practices including fraud and corrupt conduct. 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’.
PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING
THE BOARD SHOULD ESTABLISH AN AUDIT COMMITTEE
The Board has an Audit, Risk & Compliance Committee which reports regularly to the Board.
The membership of the Audit Risk & 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.
MEMbER
R A Longes (C)
M R Butler
V D Rubin
(C) Chairman.
QuALIFICATIONS
BA, LLB, MBA
B Sc, MBA
CA(SA), HDip BDP, MBA
MEETINgS hELD DuRINg
2011 FINANCIAL YEAR
MEETINgS ATTENDED DuRINg
2011 FINANCIAL YEAR
5
5
5
5
4
5
The function of the Audit Risk & Compliance Committee is to advise on the establishment and maintenance of a framework of internal control, effective
management of financial and other risks, compliance with laws and regulations and appropriate ethical standards for the management of the Company.
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.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 37
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 & 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.
›
›
›
›
›
The Committee reviews the effectiveness of risk management policies and procedures by:
›
›
›
›
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.
The Audit Risk & Compliance Committee acts to ensure that operational, financial and compliance risks are managed in accordance with the
Board’s risk tolerance. The 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 Audit Executive.
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 & Compliance Committee. The
Committee would select suitable candidates for the role, issue and evaluate tenders, interview the candidates and then make a recommendation to
the Board.
PRINCIPLE 5 – MAKE TIMELY AND BALANCED DISCLOSURE
COMPLIANCE WITH ASX LISTING RULE DISCLOSURE REQUIREMENTS
The Metcash Market Disclosure Policy is designed to ensure that:
›
there is full and timely disclosure of the Company’s activities to shareholders and the market, in accordance with the Company’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 the Company.
›
The policy reflects the Company’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.
38 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 C O N T I N U E D
DISCLOSURE RESPONSIBILITIES AND PROCEDURES
The Company 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 the Company 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
The Company 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 continues to encourage electronic communication with shareholders to facilitate the speedy and inexpensive dissemination of information.
This is being done through a program to obtain and update 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 ‘Investor Centre’. Provision has also been made for electronic proxy voting.
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 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 Audit Risk & Compliance Committee (AR&CC), a committee of the Board,
implement a continuous process of communication with 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 parameters within which risks must be managed.
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’.
The Company’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 (currently being aligned to ISO
31000:2009) 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.
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;
Material business risks that have been identified and included in the Risk Management Framework are grouped under the following categories:
›
›
›
›
›
›
›
›
›
›
›
› Merchandising, Customer and Supplier (i.e. Supply chain); and
›
Strategic/Sustainability.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 39
The risk management process includes the following elements:
›
Risk assessment;
— risk identification;
— risk analysis;
— risk treatment;
› Monitoring and review; and
›
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 Board as to the emergence of any significant risk issues and the management of previously reported
material risk issues.
The Audit Risk & Compliance Committee (AR&CC) is responsible for monitoring management’s risk processes other than corporate strategy, the
oversight of which is a Board responsibility. On behalf of the Board, the AR&CC monitors those risk events that could prevent the achievement of the
Company’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. These employees are also required to advise 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 (currently being aligned
to ISO 31000:2009). This system is used to profile all potential risks by identifying, prioritising and managing such risks across the Company.
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 (monitoring of residual risk levels);
follow-up on risk treatment/action plans;
escalation of issues; and
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 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 & events, risk profiles for each
pillar/business, business/functional objectives, critical success factors, processes, compliance data, 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 in planning, strategy
and company culture. The Board and the AR&RC 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.
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER DECLARATION
The Chief Executive Officer and the Chief Financial Officer 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 Chief Financial Officer 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.
40
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 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.
ADDITIONAL FINANCIAL INFORMATION
The following ‘Like for Like’ and ‘Underlying’ analyses are presented to explain the Group’s performance excluding the effects of material changes in
business structure and excluding non-recurring items and certain intangible amortisation respectively. The ‘Like for Like’ and ‘Underlying’ results are not
the statutory results of the Group. The ‘Reported’ or statutory results are presented in the attached financial statements from page 56.
‘Like for Like’ – Sales Revenue
Group Sales Revenue
Less:
Loss of ALH Volume
Campbells Wholesale Branch Closures
Mitre 10 Acquisition
‘Like for Like’ Sales Revenue
‘Like for Like’ – EBITA
Group EBITA
Less:
Loss of ALH Volume
Mitre 10 Acquisition
‘Like for Like’ EBITA
‘Underlying’ – Profit and EPS
‘Reported’ Profit after Tax
Add back:
Amortisation of Customer Relationships and Licence Agreements
Significant Items after Tax
‘Underlying’ Profit after Tax
Earnings per Share (basic) (cps)
‘Reported’
‘Underlying’
2011
$’m
2010
$’m
12,364.0
11,517.4
(41.3)
–
(797.6)
(444.7)
(51.7)
(61.6)
11,525.1
10,959.4
438.0
401.2
–
(20.7)
417.3
(11.1)
(1.5)
388.6
241.4
227.6
7.9
6.9
256.2
31.5
33.4
6.5
10.8
244.9
29.7
32.0
FINANCIAL REPORT CONTENTs
DIRECTORS’ REPORT
STATEMENT of COMPREHENSIVE INCOME
STATEMENT of FINANCIAL POSITION
STATEMENT of CHANGES IN EQUITY
STATEMENT of CASH FLOWS
NoTES To ThE FINANCIAL STATEMENTS
1 CORPORATE INFORMATION
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 SEGMENT INFORMATION
4 REVENUE AND EXPENSES
5
INCOME TAX
6 DIVIDENDS PAID AND PROPOSED
7 CASH AND CASH EQUIVALENTS
8 TRADE AND OTHER RECEIVABLES (CURRENT)
9
INVENTORIES
10 DERIVATIVE FINANCIAL INSTRUMENTS
11 RECEIVABLES (NON-CURRENT)
12 INVESTMENTS IN ASSOCIATES
13 INFORMATION RELATING TO METCASH LIMITED (THE PARENT ENTITY)
14 OTHER FINANCIAL ASSETS (NON-CURRENT)
15 PROPERTY, PLANT AND EQUIPMENT
16 INTANGIBLE ASSETS AND GOODWILL
17 SHARE-BASED PAYMENTS
18 TRADE AND OTHER PAYABLES (CURRENT)
19 INTEREST BEARING LOANS AND BORROWINGS
20 DERIVATIVE FINANCIAL INSTRUMENTS
21 PROVISIONS
22 OTHER FINANCIAL LIABILITIES
23 CONTRIBUTED EQUITY AND RESERVES
24 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
25 COMMITMENTS
26 RELATED PARTY DISCLOSURE
27 DIRECTORS’ AND EXECUTIVES’ DISCLOSURES
28 AUDITORS REMUNERATION
29 BUSINESS COMBINATIONS
30 EARNINGS PER SHARE
31 CONTINGENT LIABILITIES
32 SUBSEQUENT EVENTS
DIRECTORS’ dEclArATioN
AUDITOR’S iNdEpENdENcE dEclArATioN
INDEPENDENT AudiTor’S rEporT
ASX AddiTioNAl iNforMATioN
CORPORATE INFORMATION
M E T C A S H A N N U A L R E P O R T 2 0 1 1 41
42
56
57
58
59
60
60
60
65
66
67
68
68
69
70
70
70
71
72
72
72
73
75
77
77
77
78
78
79
80
83
84
89
92
93
95
95
95
96
97
98
100
101
42
DIRECTORs’ REPORT
Year ended 30 April 2011
Your Directors submit their report for the year ended 30 April 2011
DIRECTORS
The names and details of the Company’s Directors in office during the financial year are as follows:
Carlos S dos Santos (retired as Chairman on 2 September 2010)
Peter L Barnes (Chairman)
Andrew Reitzer (CEO)
Fiona E Balfour (appointed 16 November 2010)
Michael R Butler
Neil D Hamilton
Michael R Jablonski (retired 2 September 2010)
Edwin M Jankelowitz
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
Greg Watson (appointed 24 December 2010)
John Randall (retired 24 December 2010)
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:
Number of
ordiNary shares
Number of optioNs
over ordiNary shares
Peter L Barnes
Andrew Reitzer
Fiona E Balfour
Michael R Butler
Neil D Hamilton
Edwin M Jankelowitz
Richard A Longes
V Dudley Rubin
177,083
1,750,000
13,600
50,000
20,000
320,000
128,154
15,000
* Final 20% of the options granted in 2005 failed to meet the performance hurdle and did not vest. Options will be cancelled from the register on
2 September 2011
EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
DIVIDENDS ON ORDINARY SHARES
Final dividend for 2011 recommended
Dividends paid in the year:
Interim for the 2011 year — paid in December 2010
Final for the 2010 year recommended in the 2010 financial report
Total dividends paid in the year
Total 2011 dividends declared per share
ceNts
16.0
11.0
15.0
27.0
—
1,200,000 *
—
—
—
130,000 *
—
—
ceNts
31.46
31.41
$’m
123.0
84.6
114.8
199.4
M E T C A S H A N N U A L R E P O R T 2 0 1 1 43
CORPORATE INFORMATION
Corporate structure
The principal activities of the Group during the year 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:
Business segments
Food Distribution
Cash & Carry Distribution
Liquor Distribution
Hardware Distribution
Group adjustments/(unallocated amounts)
Group revenues and profit from continuing operations before income tax expense
2011
reveNues
$’m
7,559.9
1,709.9
2,296.6
797.6
12,364.0
97.6
12,461.6
profit
before tax
$’m
361.8
31.8
30.1
20.7
444.4
(87.5)
356.9
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
No significant changes in the state of affairs of the Group occurred during the financial period, not otherwise disclosed in the ‘Chairman’s and
CEO’s report’.
SIGNIFICANT EVENTS AFTER THE BALANCE DATE
There have been no significant events subsequent to balance date.
LIKELY DEVELOPMENTS AND EXPECTED RESULTS
Information with respect to likely developments is set out within the ‘Chairman’s and CEO’s report’.
DIRECTORS’ MEETINGS
The number of meetings of Directors (including meetings of committees of Directors) held during the year and the number of meetings attended by each
of the Directors were as follows:
MEETINgS OF COMMITTEES
directors’
meetiNgs
remuNeratioN
& NomiNatioN
audit risk
& compliaNce
Number of meetings held:
Number of meetings attended:
Carlos S dos Santos (i)
Peter L Barnes
Andrew Reitzer
Fiona E Balfour (ii)
Michael R Butler
Neil D Hamilton
Michael R Jablonski (i)
Edwin M Jankelowitz (iii)
Richard A Longes
V Dudley Rubin
10
4
10
10
6
8
9
4
10
9
10
4
2
4
—
2
—
4
—
—
—
—
5
—
—
—
—
4
—
—
—
5
5
(i) Mr dos Santos and Mr Jablonski retired from the Metcash Board on 2 September 2010.
(ii) Mrs Balfour was appointed to the Metcash Board on 16 November 2010.
(iii) Mr Jankelowitz became a non-executive director on 1 April 2011.
All Directors were eligible to attend all meetings held except for Mr dos Santos, who was eligible to attend 4 Directors’ meetings, Mr Jablonski who was
eligible to attend 4 Directors’ meetings and Mrs Balfour who was eligible to attend 6 Directors’ meetings.
44 D I R E C T O R S ’ R E P O R T C O N T I N U E D
Committee membership
As at the date of this report, the Company had an Audit Risk & Compliance Committee and a Remuneration & Nomination Committee.
Members acting on the committees of the Board during the year were:
audit risk & compliaNce
remuNeratioN & NomiNatioN
R A Longes (c)
M R Butler
V Dudley Rubin
P L Barnes *
C S dos Santos*
N D Hamilton (c)*
F E Balfour
(c) Denotes the chairman of the committee.
* Mr dos Santos was a member of the Remuneration & Nomination Committee until his retirement on 2 September 2010. Mr Hamilton was appointed
on 1 September 2010 as chairman of the Remuneration & Nomination Committee upon Mr Barnes being appointed chairman of the Metcash Board
on 2 September 2010.
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, Joao Louis Jardim
(Lou Jardin), C dos Santos and M Jablonski 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.
SHAREHOLDER RETURNS
The ongoing performance of the Group has ensured that returns to shareholders, through both dividends and capital growth, has continued.
Earnings per share before non-recurring items (cents)
Basic earnings per share (cents)
Dividends declared per share (cents)
Dividend payout ratio on basic earnings per share (%)
Return on equity (%)
Share price (30 April) ($)
Dividend yield (%)
YEAR ENDED 30 APRIL
2011
32.4
31.5
27.0
85.8
17.2
4.08
6.6
2010
31.2
29.7
26.0
87.4
17.3
4.15
6.3
2009
28.7
26.5
24.0
90.7
17.2
4.12
5.8
2008
25.3
25.9
21.0
81.2
15.6
4.22
5.0
2007
21.8
21.1
17.0
80.6
14.2
5.24
3.2
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 consolidated 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.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 45
REMUNERATION REPORT (AUDITED)
Executive Summary
Metcash is the “third force” in the grocery and liquor industries. Its efforts are concentrated in the supply (supply chain and logistics), marketing,
promotion and retailing of goods through its network of Independent Retailers.
As such Metcash competes directly and through the Independent sector with the with self supplied chains and all other “non independent” organisations
in these sectors.
The competition Metcash faces is not restricted to those factors outlined above. On a daily basis each of the competitors seeks to enhance their
advantage through the attraction, retention and development of high calibre people charged with decision making and successful implementation of
various strategies to maximise their shareholders’ investment.
For Metcash this is a “war for talent” and as such the competition for high calibre people is as intense as the drive for profitability. This requires Metcash
to provide financial incentives within a limited market to attract and retain the best qualified people to be able to deliver on its strategies.
Metcash has been able to differentiate itself from its other competitors, in relation to remuneration, by paying base salaries at a level sufficient to remain
market competitive but then to place a significant proportion of total remuneration “at risk”. This is achieved by providing short and long term incentives
designed to extract superior performance which in turn drives profitability and enhances shareholder value.
This report outlines the remuneration arrangements for Directors and Executives of Metcash Limited (the Company).
Remuneration and Nomination Committee
Role
The Remuneration and 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 management staff, Directors’ and
Executives’ retirement, pension and superannuation schemes, and employee participation schemes, including executive share and share option
plans and employee share plans;
administer the Metcash Employees Option Plan, the Metcash Performance Rights 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 and Nomination Committee assesses the appropriateness of the nature and amount of remuneration of Directors and Senior
Executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder
benefit from the retention of a high quality Board and Executive team.
Compensation structure
In accordance with best practice corporate governance, the structure of Non-executive Director and Senior Executive remuneration is separate and distinct.
Non-executive Director compensation
Aggregate Non-executive Directors’ remuneration is determined from time to time by members at a general meeting. The current limit, $1,300,000, was
agreed by members at the 2 September 2010 Annual General Meeting.
Non-executive Directors are paid an annual fee which is periodically reviewed. The Remuneration and 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. Directors performing committee duties are paid
additional fees. The current fees were based on independent advice and are:
Chairman
Chairman Remuneration and Nomination Committee
Chairman, Audit Risk and Compliance Committee
Directors (3)
Directors (1)
base fee
chair fee
committee fee
superaNNuatioN
total
$115,000
$115,000
$115,000
$345,000
$115,000
$172,500
$11,500
$23,000
$28,000
—
—
—
—
$34,500
—
$15,199
$12,420
$12,870
$34,155
$10,350
$314,199
150,420
155,870
$413,655
$125,350
$805,000
$223,500
$46,000
$84,994
$1,159,494
Non-executive Directors do not receive bonuses and are not entitled to participate in any of the Company’s short or long term incentive schemes. The
Options held by E M Jankelowitz are for past service as an Executive Director. No new options will be issued.
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 at the time, based on independent advice to reflect the cessation of this benefit.
46 D I R E C T O R S ’ R E P O R T C O N T I N U E D
accrued beNefits
R A Longes
P L Barnes
$
211,619
211,619
423,238
Senior Executive and Executive Director compensation
It is the policy of Metcash to remunerate employees in appropriate ways that recognise the market 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 Board and the Remuneration and 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;
select Key Performance Indicators (KPIs) and performance hurdles that will encourage results across the Group and have a significant portion of
total reward “at risk”;
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
The Chief Executive Officer and the Chief Human Resources Officer have assisted the Remuneration and Nominations Committee in its deliberations
during the year. In addition, independent advisers were retained to provide assistance and advice on market-related remuneration and short, medium
and long-term incentives.
Service contracts
Service contracts exist for Senior Executives including the Chief Executive 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.
New service contracts entered into post the Productivity Commission’s Report on Executive Remuneration 2010, contain similar elements to other
executives’ service contracts and comply with the Federal Government’s law on executive contracts limiting any termination payments to a maximum
amount of twelve months of base salary.
Executives who resign or whose employment is terminated for cause and whose short term or long term incentives are unvested at the time, forfeit their
entitlements to those unvested incentives. Executives who are retrenched or who retire from full time work before vesting of short or long term incentives
or who die whilst employed by the Company, may be allowed (or their Estate may be allowed) to keep all or part of those unvested incentives, at the
discretion of the Board.
In some circumstances surrounding termination of employment, the company may require individuals to enter into non-compete arrangements with
the company, to protect the company’s rights. These non compete arrangements may require a payment to the individual in consideration of these
arrangements.
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
of Total Employment Cost (TEC). 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
Superannuation benefits are delivered in accordance with the Australian Government’s Superannuation Guarantee Levy.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 47
At risk remuneration
The ‘at risk’ remuneration, with the short-term focus on sales revenue and profit and the long-term award influenced by earnings per share, has
contributed to the growth in the shareholder returns as identified in the Shareholder Returns section of the Directors’ Report.
Metcash’s policy strictly prohibits all Key Management Personnel from hedging any equity-based incentive remuneration.
Short-term incentives (STI)
Within the Group each Business Pillar and the Corporate Team have separate STI schemes, designed to align each executive’s incentives to the financial
objectives of the pillar or team concerned and which aggregate to overall group objectives. Two KPIs are utilised, being — sales revenue and profit.
From this a matrix is formed to measure performance, usually with the previous year’s sales revenue 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.
STI’s are paid in cash, historically 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 2011 year, due to the economic volatility brought on by floods, cyclones and fire, the first
half STI payment was deferred to the end of the year.
The STI schemes operate on the condition that they are self-liquidating. That is, that the cost of the STI has been deducted from profit earned for the
year prior to determining the level of performance achieved.
STI eligibility criteria
The STI scheme is designed so that only those employees whose decisions and actions make a significant contribution to the achievement of the
Company’s financial objectives are eligible to participate. The level of a participant’s STI is determined as follows:
1. Participants eligible for STI at 75% of fixed remuneration (Executive management STI scheme)
(Number of participants: 57)
The STI component is to a maximum of 75% of fixed remuneration and is at risk against achievement of sales revenue and Earnings Before Interest and
Tax/ Profit After Tax (EBIT/PAT) targets. These participants have a high level/critical accountability that directly impacts on the company’s performance.
These are employees who hold a position that:
›
›
›
›
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
has a direct impact on profitability.
2. Participants eligible for STI at 50% fixed remuneration (Management STI scheme) (Number of participants: 124)
The STI component is to a maximum of 50% of fixed remuneration and is at risk against achievement of sales revenue and EBIT/PAT targets. These
participants 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.
These are employees who hold a position that:
›
›
›
has extensive specialist technical or professional knowledge in an area of expertise;
has high level budgetary and/or strategic responsibility; and
is responsible for several related activities, i.e. a whole function.
3. Participants eligible for STI at 25% of fixed remuneration (Metcash STI scheme) (Number of participants: 214)
The STI component is to a maximum of 25% of fixed remuneration and is at risk against achievement of sales revenue and EBIT/PAT targets.
These participants hold positions that are generally compliance and/or process driven.
These are employees who hold a position that:
›
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.
Other incentive schemes
Metcash does not restrict stretch targets to the senior ranks of the organisation only. Its philosophy of providing incentives for superior performance
flows through most parts of the organisation where it is appropriate and desirable to do so. To achieve this, other incentive schemes are also in
operation. Those parts of the organisation include warehouse supervisors where we strive for world class efficiencies, re-buyers, stock controllers,
merchandisers and other specialist key roles which are focussed on reductions in the cost of doing business and are based on achievement of internal
KPI’s such as; reductions in cost per case, reductions in time to fill customer orders, increases in customer service levels etc.
Hurdles
Achievement of all long term incentives granted by the company are subject to hurdles being met. These hurdles have objectives that must be achieved
on a prolonged basis — usually 3–5 years — and which directly improve the value of the Company. This is expressed as an increase in earnings per
share. To provide an accurate and consistent basis of measuring this growth in value, a calculation is used to determine “underlying” earnings per share.
This is defined as reported earnings per share excluding amortisation and non-recurring items and best reflect 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 Governance
Statement contained earlier in this annual report.
48 D I R E C T O R S ’ R E P O R T C O N T I N U E D
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.
At the time these grants were made, it was considered that a cash plan would be the most appropriate kind of incentive. The reasoning behind this was
that Share Option schemes were being questioned by many top ASX 100 Companies as the most effective incentive scheme and work on possible new
incentive schemes to closer align management and shareholder interests, was at the time, “work in progress”. A new long term incentive scheme, The
Metcash Performance Rights Plan, was introduced in 2010 as the Company’s long term incentive scheme.
August 2006 Grant
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. This plan concluded 30th April 2010 and the audited results showed an achievement of 92.98% of target.
In accordance with the rules of the Plan, the participants were paid a sum equal to 92.98% of the target as reported in the 2010 Annual Report.
April 2007 Grant
A further long term retention incentive of $1 million was granted to each of the Chief Executive Officer Campbell’s Wholesale, Chief Executive Officer,
Logistics and Corporate Development, Chief Executive Officer ALM and the Chief Human Resources Officer. The vesting of these grants is subject
to achievement of hurdles over a five-year period (a compounding 10% increase in underlying 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 performance hurdles described above in 2012, and
if the Executive is still employed by the Company at that time.
If the compound annual growth achieved by the Company from the base year is:
›
›
›
equal to or greater than the target, then the maximum amount ($1 million) will be payable;
less than 40% of the target at the end of the five-year period, no payment will be made or;
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.
May 2009 Grant
A long term retention payment of $1 million was granted in May 2009 to each of the Chief Executive Officer of IGA Fresh and the General Manager,
Finance (appointed Chief Financial Officer on 17 January 2011). The vesting of the long term incentive grant is subject to achievement of the
performance hurdles over a five year period (a compounding 8% increase in underlying earnings per share based on 2009 underlying earnings per share
adjusted for material changes to the number of shares issued) and only payable:
›
›
on successful achievement of the performance hurdles described above 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 achieved by the Company from the base year is;
›
›
›
equal to or greater than the target, then the maximum amount ($1 million) will be paid;
less than 40% of the target at the end of the five year period, no payment will be made or;
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.
Prior to this grant the Chief Executive Officer of IGA Fresh and the General Manager Finance (now CFO) were not previously included in the Plan,
however they have now been included 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 (see discussion under “Options”
section below) , and as these 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 Plan, as part of the long term
incentive granted to them, 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. Therefore 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.
May 2010 Grant
In May 2010 a three year retention incentive was granted to the Chief Executive Officer, commencing at the expiration of the five year retention incentive
granted to him in August 2006.
The performance period for this grant commenced on 1 May 2010 and concludes on 30 April 2013. This grant will be subject to a growth in underlying
earnings per share performance hurdle and tested at the end of the performance period.
A minimum payment of $3 million will be paid for the achievement of a 5% annual compounded growth in underlying earnings per share for the
three years, based on underlying earnings for the 2010 year, and a maximum payment of $5 million for the achievement of a 10% or better growth in
compounded underlying earnings per share over that period. Pro rata payments are to be made for achievements between 5% and 10%.
No Performance Rights or Share Options have been granted to the CEO since 2005.
Long Term Retention Grants going forward
It is anticipated that in view of the establishment of the new Performance Rights Plan (see section below), that there will not be a general requirement for
a further long-term retention plan other than that already announced for the Chief Executive Officer and described above.
Options
Options issued to company staff other than Executive Directors, the CEO and the Executive Team do not have performance hurdles applied to them.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 49
Options issued to Executive Directors
The performance hurdle for options issued to Executive Directors in 2005, as agreed by shareholders 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 these options are exercised by Executive Directors, agreement is obtained from the Remuneration and Nomination Committee, which verifies that
the hurdle has been achieved with confirmation obtained from the Company’s external auditor.
The Remuneration and 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.
The final tranche of the 2005 options (20%) failed to meet the performance hurdle and as a consequence these options did not vest and will lapse in
September 2011.
Options Issued to the Executive Team
Options were issued in 2005 to members of the Executive Team (excluding the CEO IGA Fresh and the General Manager Finance (now CFO) who were
not members of the Executive Team at the time). A performance hurdle applies to these options being a compounding 10% increase in underlying
earnings per share.
The Remuneration and Nominations Committee has reviewed the hurdles for all three tranches of the 2005 options issue and concluded that the hurdles
have been met and all of those options can be exercised. Unexercised options will lapse in September 2011.
Options Issued to Chief Executive Officer, IGA Fresh and General Manager Finance (now CFO)
Options were issued in February 2008 to the Chief Executive Officer, IGA Fresh and the General Manager, Finance (now CFO) 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 8% increase in underlying earnings per share based on earnings per share for the 2007 financial year is to be achieved in the financial
year prior to the financial year in which a tranche of options becomes able to be exercised.
Before these options are exercised by these members of the Executive Team, agreement is obtained from the Remuneration and Nomination Committee
which verifies that the hurdle has been achieved with confirmation from the Company’s external auditor.
Performance Rights
As of June 2010, Performance Rights (the Rights Plan) replaced Share Options as the Company’s long term incentive scheme. Under the Rights Plan,
the top 60 (approximately) Metcash Executives and Senior Managers (with “direct sight” to the bottom line growth of the Company) will be offered
Performance Rights. Hurdle rates are reviewed annually by the Board which will determine earnings per share targets for each new grant based on
factors including business plans and strategies, analyst consensus and expectations and other financially critical matters.
The essential elements of the Rights Plan are as follows:
›
each Performance Right is an entitlement to receive a fully paid ordinary share in the Company on terms and conditions determined by the Board,
including vesting conditions linked to service and performance over a 3 year period;
performance Rights are offered at no cost to the Senior Executive/Senior Manager and as such, significantly fewer Performance Rights are offered
than was the case with options;
performance Rights are offered annually with vesting after 3 years subject to achievement of hurdle rates. For the 2011 financial year this was
set at between 5% and 10% compound underlying earnings per share growth. (i.e. 5% underlying earnings per share growth earns 50% of the
Performance Rights allocation and 10% underlying earnings per share growth earns 100% of the allocation). Pro rata payments are to be made
for achievements between 5% and 10%. If the vesting conditions are satisfied, the Performance Rights vest and shares will be delivered to the
Executive or Senior Manager;
underlying earnings per share is calculated on the company’s underlying profit, adjusted for non-recurring and significant items such as goodwill
impairment or amortisation, or other non cash accounting items;
persons offered Performance Rights will not be offered options or any other form of long term incentive;
performance Rights do not carry voting or dividend rights, however shares allocated upon vesting of Performance Rights will carry the same rights
as other ordinary shares;
the number of Performance Rights granted is determined by dividing the value of an Executive’s/Senior Manager’s long term incentive entitlement by
the Company’s share price at the time of issue.
The number of Executives and Senior Managers granted Performance Rights in financial year 2011 was 59.
Employee Share Trust (EST)
In April 2010 the Board approved the establishment of an Employee Share Trust, ‘The Metcash Employee Share Trust’ (EST). The EST functions as an
administrative vehicle through which employee options and Performance Rights (and any other form of long term incentive, other than cash incentives)
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 Performance Rights are held by the Trust in the name of the employee and the Trust acts 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 Performance Rights and 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 Performance Rights through the Trust; and
reports on an annual basis on its activities throughout the financial year.
›
›
›
›
›
›
›
›
›
›
50 D I R E C T O R S ’ R E P O R T C O N T I N U E D
Company Performance
The 2011 financial year’s results showed an increase in wholesale sales over the prior year of 7.4% and an increase in EBITA before significant items
over the prior year of 9.2%. This translates into a reported EPS of 6.1% growth over the prior year. Underlying profit after tax for the year increased
by 4.6%.
In the same period salaries were increased by an average 2.5% and Enterprise Bargaining Agreements (EBA’s) made during the year were also held
at 2.5% unfunded and any increase beyond that, fully funded through productivity increases.
STI’s for the same period were paid at an average of approximately 60% of maximum.
As reported earlier in this section the 3rd and final tranche of the 2005 Share Options for Executive Directors, which had a hurdle of 12.5% compound
increase in EPS from the 2005 EPS result, failed to meet the performance hurdle and the options did not vest. The performance hurdle on the 2005
Share Options granted to Senior Executives with a hurdle rate of 10% compound increase in EPS from the 2005 EPS result, has been met and these
Options are now exercisable.
Details of Key Management Personnel
directors
executives
Carlos S dos Santos (i)
Former Non-executive Chairman
Ken Bean
CEO Group Logistics and Corporate Development
Peter L Barnes
Andrew Reitzer
Non-executive Chairman
Fergus Collins
CEO Australian Liquor Marketers
Chief Executive Officer
Peter Dubbelman
CEO Campbells Wholesale
Fiona E Balfour (ii)
Non-executive Director
Adrian Gratwicke (iv)
Chief Financial Officer
Michael R Butler
Non-executive Director
Bernard Hale
Chief Information Officer
Neil D Hamilton
Non-executive Director
Michael R Jablonski (v) Group Merchandise Director
Edwin M Jankelowitz (iii) Non-executive Director
David Johnston
Chief Human Resources Officer
Richard A Longes
Non-executive Director
Mark Laidlaw
CEO Mitre 10
V Dudley Rubin
Non-executive Director
Silvestro Morabito
CEO IGA Distribution
Harry Rumpler
CEO IGA Fresh
Greg Watson (vi)
General Counsel and Company Secretary
(i) Mr dos Santos retired from the Metcash Board on 2 September 2010.
(ii) Mrs Balfour appointed to the Metcash Board on 16 November 2010.
(iii) Mr Jankelowitz retired as Finance Director on 31 March 2011 and became a non-executive Director on 1 April 2011.
(iv) Mr Gratwicke appointed Chief Financial Officer on 17 January 2011.
(v) Mr Jablonski retired from the Metcash Board on 2 September 2010 and continues in his Executive role as Group Merchandise Director.
(vi) Mr Watson appointed General Counsel and Company Secretary on 24 December 2010.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 51
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 2011
ShORT-TERM
EMPLOYMENT LONg TERM
bENEFITS
PAYMENTS
TOTAL
POST
TERMINATION ShARE-bASED
TOTAL
PERFORMANCE
RELATED
ShARE
bASED
PAYMENTS
salary
aNd fees
$
boNus
$
other
beNefits
$
super-
aNNuatioN
$
boNus
aNd leave
$
termiNatioN
beNefits
$
expeNse
$
$
248,493
—
—
—
—
11,632
15,015
—
—
1,937,856
900,000
3,321
15,076 1,732,945
Directors
C S dos Santos (i)
190,546
P Barnes
A Reitzer
F Balfour (ii)
M Butler
N Hamilton
47,518
121,917
128,625
—
—
—
E Jankelowitz (iv)
677,137
306,142
R Longes
D Rubin
Executives
K Bean
S Morabito
F Collins
138,104
121,917
—
—
603,374
274,140
702,593
325,476
543,742
254,172
P Dubbelman
541,630
228,410
A Gratwicke (vi)
690,726
295,780
B Hale
D Johnston
H Rumpler
602,248
273,641
471,225
215,546
466,478
177,984
M Jablonski (iii)
691,582
330,763
M Laidlaw
G Watson (v)
509,721
183,333
122,754
51,952
—
—
—
—
—
—
—
—
14,000
23,000
—
—
—
27,500
23,000
—
—
4,277
10,973
11,576
13,809
12,429
10,973
—
—
—
—
—
—
15,076
213,125
15,076
71,182
15,076
211,786
15,076
212,790
15,076
258,791
15,076
12,376
15,076
209,994
15,076
210,102
15,076
15,076
5,251
15,277
41,180
5,283
%
—
—
—
—
—
—
—
—
—
—
202,178
263,508
26,111 4,615,309
56.18%
—
—
—
51,795
132,890
140,201
—
—
—
556,622
2,829 1,556,539
19.85%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
150,533
132,890
—
—
25,301 1,131,016
44.16%
55,130 1,169,457
32.55%
19,214 1,057,990
44.74%
18,756 1,039,662
43.01%
64,263 1,324,636
42.28%
34,117
937,458
32.83%
16,791
928,632
46.56%
58,843
955,983
45.69%
26,971 1,102,669
32.44%
48,073
797,383
29.02%
12,928
198,168
32.74%
%
0.00%
0.00%
0.57%
0.00%
0.00%
0.00%
0.18%
0.00%
0.00%
2.24%
4.71%
1.82%
1.80%
4.85%
3.64%
1.81%
6.16%
2.45%
6.03%
6.52%
9,558,186 3,817,339
90,821
261,771 3,194,831
556,622
409,327 17,888,897
39.65%
2.29%
(i) Mr dos Santos retired from the Metcash Board on 2 September 2010.
(ii) Mrs Balfour appointed to the Metcash Board on 16 November 2010.
(iii) Mr Jablonski retired from the Metcash Board on 2 September 2010 and continues in his Executive role as Group Merchandise Director.
(iv) Mr Jankelowitz retired as Finance Director on 31 March 2011 and became a non-executive Director on 1 April 2011. An amount equal to nine months salary
has been paid to Mr Jankelowitz, following his termination as Finance Director. This amount was stipulated in his contract of appointment.
(v) Mr Watson appointed General Counsel and Company Secretary on 24 December 2010.
(vi) Mr Gratwicke appointed Chief Financial Officer on 17 January 2011.
52 D I R E C T O R S ’ R E P O R T C O N T I N U E D
Compensation for Key Management Personnel and the five highest paid executives of the Company and the Group for the year ended 30 April 2010
ShARE
bASED
PAYMENTS
TOTAL
PERFORMANCE
RELATED
TERMINATION ShARE-bASED
EMPLOYMENT LONg TERM
ShORT-TERM
PAYMENTS
bENEFITS
TOTAL
POST
salary
aNd fees
$
boNus
$
other
beNefits
$
super-
aNNuatioN
$
boNus
aNd leave
$
termiNatioN
beNefits
$
expeNse
$
$
Directors
C S dos Santos (iv)
272,463
P Barnes (iv)
177,963
—
—
—
—
10,846
12,931
—
—
A Reitzer
M Butler
N Hamilton
M Jablonski
1,759,620
978,526
3,837
14,342
686,588
115,500
115,500
—
—
—
—
10,395
10,395
—
—
674,688
392,490
23,000
14,342
273,961
E Jankelowitz
706,086
396,301
—
14,342
274,467
—
—
—
—
—
—
—
L Jardin (i)
R Longes
D Rubin
Executives
K Bean
131,250
115,500
—
—
577,115
325,301
S Morabito (ii)
105,435
58,208
F Collins
519,914
219,350
P Dubbelman
517,051
189,418
A Gratwicke
499,825
280,500
B Hale
D Johnston
H Rumpler
576,038
324,709
450,697
255,771
—
—
—
—
14,000
23,000
—
—
—
11,813
10,395
—
—
14,342
212,035
334
—
14,342
210,841
14,342
211,677
14,342
222,808
14,342
271,018
14,342
209,196
388,255
226,800
30,000
14,342
222,484
—
—
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%
%
—
—
%
0.00%
0.00%
2.18%
0.00%
0.00%
2.93%
2.90%
—
—
—
—
—
—
—
—
—
—
—
—
143,063
125,895
—
—
0.00%
0.00%
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
49.73%
55,171 1,241,278
51.52%
15,541
945,547
49.85%
50,800
932,681
51.21%
1.36%
0.00%
0.20%
1.60%
4.76%
4.44%
1.64%
5.45%
494,603
287,484
17,250
10,756
203,391 31,157 1,044,641 55.35% 2.98%
8,197,503 3,934,858
111,087
221,285 2,998,466
—
396,275 15,859,474
45.52%
2.50%
(i) Mr Jardin resigned from the Metcash Board on 9 February 2010 and ceased to be a Key Management Personnel at this time. Mr Jardin served a notice period
until 25 October 2010, receiving 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 2010
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
(v) 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.
(vi) Post employment superannuation has been reclassified to exclude salary sacrifice superannuation payments which has been added to salary and fees, leaving
only the superannuation guarantee contribution payment.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 53
Options exercised and share rights granted as part of remuneration for the year ended 2010 and 2011
Value of Options exercised during the year
A Reitzer
M Jablonski
E Jankelowitz
K Bean
F Collins
P Dubbelman
A Gratwicke
B Hale
D Johnston
S Morabito
H Rumpler
M Laidlaw
G Watson
2011
$
—
181,932
237,432
—
—
217,960
16,202
—
126,368
4,234
—
—
—
2010
$
—
—
—
—
—
—
1,924
669,800
—
97
—
—
—
There were no options issued to Key Management Personnel during the current year (2010: nil). Refer to Note 27 Directors’ and Executive Disclosures
of Key Management Personnel (b) Option Holdings
Number of Performance Rights granted during the year
A Reitzer
M Jablonski
E Jankelowitz
K Bean
F Collins
P Dubbelman
A Gratwicke
B Hale
D Johnston
S Morabito
H Rumpler
M Laidlaw
G Watson
The performance rights were granted 3 December 2010 with a fair value at grant date of $3.62.
2011
Number
—
70,171
—
58,159
53,923
54,514
59,770
58,053
45,728
70,171
42,479
49,166
23,628
54 D I R E C T O R S ’ R E P O R T C O N T I N U E D
Details of short term incentive bonus provided for in year ended 30 April 2011
Directors
C S dos Santos (i)
P Barnes
A Reitzer
F Balfour (ii)
M Butler
N Hamilton
E Jankelowitz (iii)
R Longes
D Rubin
Executives
K Bean
S Morabito
F Collins
P Dubbelman
A Gratwicke (iv)
B Hale
D Johnston
H Rumpler
M Jablonski (v)
M Laidlaw
G Watson (vi)
poteNtial boNus
$
boNus payable
$
boNus forfeited
$
—
—
—
—
—
—
1,500,000
900,000
600,000
—
—
—
—
—
—
—
—
—
556,622
306,142
250,480
—
—
456,901
513,909
423,620
428,269
492,968
456,069
359,243
333,720
551,271
257,500
86,587
—
—
274,140
325,476
254,172
228,410
295,780
273,641
215,546
177,984
330,763
183,333
51,952
—
—
182,761
188,433
169,448
199,859
197,188
182,428
143,697
155,736
220,508
74,167
34,635
All bonuses for the year ended 30 April 2011 were paid in June 2011.
(i) Mr dos Santos resigned from the Metcash Board on 2 September 2010.
(ii) Mrs Balfour appointed to the Metcash Board on 16 November 2010.
(iii) Mr Jankelowitz retired as Finance Director on 31 March 2011 and became a non-executive Director on 1 April 2011.
(iv) Mr Gratwicke appointed Chief Financial Officer 17 January 2011.
(v) Mr Jablonski resigned from the Metcash Board on 2 September 2010 and continues in his Executive role as Group Merchandise Director.
(vi) Mr Watson appointed General Counsel and Company Secretary 24 December 2010.
Details of short term incentive bonus provided for in year ended 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
S Morabito
F Collins
P Dubbelman
A Gratwicke
B Hale
D Johnston
H Rumpler
All bonuses for the year ended 30 April 2010 were paid in June 2010.
poteNtial boNus
$
boNus payable
$
boNus forfeited
$
—
—
—
—
—
—
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
M E T C A S H A N N U A L R E P O R T 2 0 1 1 55
SHARE OPTIONS & PERFORMANCE RIGHTS
Unissued shares
As at the date of this report, there were 23,985,713 unissued ordinary shares under option (24,126,321 at the reporting date). Refer to Note 27 of the
financial statements for further details of the options outstanding.
As at the date of this report, there were 1,399,385 unissued ordinary shares under performance rights (1,399,385 at the reporting date). Refer to
Note 27 of the financial statements for further details of the performance rights outstanding.
Shares issued as a result of options
During the financial year, employees and executives have exercised options to acquire 3,209,613 fully paid ordinary shares in Metcash Limited at a
weighted average exercise price of $3.97 per share. Since the end of the financial year, a further 75,280 options have been exercised, at a weighted
average exercise price of $3.93 per share.
CEO AND CFO DECLARATION
The Chief Executive Officer and Chief Financial Officer have provided a declaration that states:
(a) With regard to the integrity of the financial report of Metcash Limited (the Company) and the consolidated entity for the period to 30 April 2011,
after having made appropriate enquiries, in our opinion:
(i) The financial statements and associated notes comply with the accounting standards and regulations as required by Section 296 of the
Corporations Act 2001;
(ii) The financial statements and associated notes give a true and fair view of the financial position as at 30 April 2011 and performance of the
Company and the consolidated entity for the period then ended as required by Section 297 of the Corporations Act 2001;
(iii) As at the date of this declaration, 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 and the consolidated
entity for the period ended 30 April 2011:
(i) The financial records of the Company and the consolidated entity have been properly maintained in accordance with Section 286 of the
Corporations Act 2001;
(ii) The statements made in (a) and (b)(i) above are founded on a sound system of risk management and internal compliance and control which is
operating effectively, in all material respects, in relation to financial reporting risks;
(iii) The risk management and internal compliance and control systems of the Company and consolidated entity relating to financial reporting,
compliance and operations objectives are operating efficiently and effectively, in all material respects. Management has reported to the Board as
to the effectiveness of the company’s management of its material business risks.
(iv) Subsequent to 30 April 2011, 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 2011 has been received and is included on page 97.
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 2001. The nature and scope of each type of
non-audit service provided means that auditor independence was not compromised.
The amount payable to Ernst & Young in tax compliance should be seen in the context of the tax audit which the company has under gone and the
significant work which was required in responding to the Australian Taxation Office queries.
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.
$1,651,971
$129,900
Andrew Reitzer
Director
Sydney, 7 July 2011
56
STATEMENT of COMPREhENsIVE INCOME
for the Year ended 30 April 2011
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative costs
Share of (loss)/profit of associates
Significant Items
Franklins acquisition costs
Restructure of Campbells Wholesale 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
Cash flow hedge adjustment
Income tax benefit/(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
Non controlling interests
Total comprehensive income for the period is attributable to:
Equity holders of the parent
Non controlling interests
Earnings per share for profit from continuing operations attributable
to the ordinary equity holders of the company:
— basic earnings per share (cents)
— diluted earnings per share (cents)
Dividends per share (fully franked) (cents)
The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
Notes
2011
$’m
2010
$’m
4(a)
12,461.6
11,608.1
(11,186.9)
(10,435.3)
1,274.7
1,172.8
(423.8)
(407.9)
(1.7)
(6.9)
—
(77.5)
356.9
(106.1)
250.8
(0.3)
—
0.1
(0.2)
(405.8)
(364.4)
0.3
—
(15.4)
(57.5)
330.0
(99.7)
230.3
(0.6)
(0.1)
—
(0.7)
250.6
229.6
241.4
9.4
250.8
241.2
9.4
250.6
31.46
31.41
27.00
227.6
2.7
230.3
226.9
2.7
229.6
29.74
29.69
26.00
12
4(f)
4(f)
4(g)
5
30
30
6
M E T C A S H A N N U A L R E P O R T 2 0 1 1 57
STATEMENT of FINANCIAL POsITION
As at 30 April 2011
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Assets held for sale
Derivative financial instruments
Prepayments and other
Total 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
Non controlling interests
TOTAL EQUITY
The above Statement of Financial Position should be read in conjunction with the accompanying notes.
Notes
2011
$’m
2010
$’m
7
8
9
10
11
12
14
15
5
16
18
19
20
21
22
19
21
22
23
23
23
23
152.9
1,007.3
954.9
9.9
0.9
5.8
210.6
1,008.0
747.2
4.0
—
4.9
2,131.7
1,974.7
80.6
92.1
0.2
197.6
6.6
65.4
94.8
0.2
194.7
27.2
1,291.1
1,282.0
1,668.2
1,664.3
3,799.9
3,639.0
1,376.5
1,294.4
8.6
1.4
73.4
14.3
0.2
7.8
0.6
99.8
45.6
0.2
1,474.4
1,448.4
826.7
54.2
1.8
882.7
749.4
61.7
1.9
813.0
2,357.1
2,261.4
1,442.8
1,377.6
1,904.9
1,892.2
(765.9)
28.2
208.0
(765.9)
25.8
166.0
1,375.2
1,318.1
67.6
59.5
1,442.8
1,377.6
58
STATEMENT of ChANGEs IN EquITy
Year ended 30 April 2011
coNtributed
eQuity
$’m
other
eQuity
$’m
share-based
paymeNts
$’m
retaiNed
earNiNgs
$’m
At 1 May 2010
1,892.2
(765.9)
—
—
19.7
—
166.0
241.4
foreigN
curreNcy
traNslatioN
reserve
$’m
cash flow
hedge
reserve
$’m
owNers of
the pareNt
$’m
NoN-
coNtrolliNg
iNterest
$’m
total
eQuity
$’m
(6.6)
(0.3)
(0.1)
1,318.1
59.5
1,377.6
0.1
241.2
9.4
250.6
capital
profits
$’m
12.8
—
Total comprehensive
income, net of tax
Transactions with
owners in their
capacity as owners:
Exercise of options
Share-based payment
Dividends paid
Total comprehensive
income, net of tax
Transactions with
owners in their
capacity as owners:
Exercise of options
Non controlling
interests on acquisition
Share-based payment
Dividends paid
12.7
—
—
—
—
—
—
2.6
—
—
—
(199.4)
—
—
—
At 30 April 2011
1,904.9
(765.9)
22.3
208.0
12.8
At 1 May 2009
1,889.7
(765.9)
—
—
17.1
—
129.7
227.6
12.8
—
2.5
—
—
—
—
—
—
—
—
—
2.6
—
—
—
—
(191.3)
—
—
—
—
—
—
—
(6.9)
(6.0)
(0.6)
—
—
—
—
—
—
—
12.7
2.6
—
—
12.7
2.6
(199.4)
(1.3)
(200.7)
— 1,375.2
67.6
1,442.8
— 1,277.4
(0.1)
226.9
2.0
2.7
1,279.4
229.6
—
—
—
—
2.5
—
2.6
—
55.1
2.5
55.1
—
2.6
(191.3)
(0.3)
(191.6)
At 30 April 2010
1,892.2
(765.9)
19.7
166.0
12.8
(6.6)
(0.1)
1,318.1
59.5
1,377.6
The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 59
STATEMENT of CAsh FLOws
Year ended 30 April 2011
Cash flows from operating activities:
Receipts from customers
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
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 other entities
Payment on acquisition of businesses
Payment on acquisition of associates
Net cash flows used in investing activities
Cash flows from financing activities:
Proceeds from the issue of ordinary shares
Payment of refinancing costs
Proceeds from borrowings – other
Repayments of borrowings – other
Payment of dividends on ordinary shares
Payment of dividends to non controlling interests
Repayment of finance lease principal
Net cash flows used in financing activities
Net (decrease)/increase 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
The above Statement of Cash Flows should be read in conjunction with the accompanying notes.
Notes
2011
$’m
2010
$’m
13,222.6
12,440.4
(12,772.2)
(11,862.7)
1.6
9.7
(72.3)
(116.8)
(130.1)
142.5
0.9
(34.7)
(21.6)
—
15.5
(27.0)
(14.9)
(0.5)
(82.3)
12.7
(1.5)
500.0
(420.0)
(199.4)
(1.3)
(8.3)
(117.8)
(57.6)
210.6
(0.1)
152.9
2.0
8.2
(54.2)
(101.6)
(137.4)
294.7
1.2
(39.3)
(30.9)
0.1
16.6
(21.0)
(62.0)
(0.9)
(136.2)
2.5
(6.1)
795.0
(688.7)
(191.3)
(0.3)
(7.5)
(96.4)
62.1
148.6
(0.1)
210.6
7
29 (a)
23
6
7
60
NoTES To ThE FINANCIAL sTATEMENTs
Year ended 30 April 2011
1 CORPORATE INFORMATION
The financial report of Metcash Limited (the
Company) for the year ended 30 April 2011
was authorised for issue in accordance with
a resolution of the Directors on 7 July 2011.
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 and share rights which
have been valued on a binomial basis.
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.
The financial statements present the results of
the current year, which comprised the 53 week
period that commenced on 26 April 2010 and
ended on 1 May 2011. The prior period results
comprise the 52 week period that commenced
on 27 April 2009 and ended on 25 April 2010.
(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 2010, the Group has adopted a
number of Australian Accounting Standards and
Interpretations which are mandatory for annual
periods beginning on or after 1 May 2010.
Adoption of these Standards and Interpretations
has not had any material effect on the financial
position or performance of the Metcash group.
The main standards adopted since
1 May 2010 were the revised AASB 3
‘Business Combinations’, amended AASB
127 ‘Consolidated and Separate Financial
Statements’ and AASB 2008-3 ‘Amendments
to Australian Accounting Standards arising
from AASB 3 and AASB 127’. These revised
standards introduce significant changes to
accounting for business combinations and
consolidation. The major impacts include
the requirement for acquisition costs to be
expensed at the time they are incurred; and,
upon gaining control of an entity, revaluation
of any pre-existing interests in that entity to
fair value. The changes only impact business
combination transactions which occurred on or
after 1 May 2010.
The following amendments to standards
have been adopted from 1 May 2010 and did
not have a material impact on the financial
statements for the year:
— AASB 2008-3 – Amendments to Australian
Accounting Standards arising from AASB 3
and AASB 127
— AASB 2009-4 – Amendments to Australian
Accounting Standards arising from the
Annual Improvements Project – AASB
2009-7 – Amendments to Australian
Accounting Standards arising from the
Annual Improvements Project
— AASB 2008-6 – Amendments to Australian
Accounting Standards
— AASB 2009-8 – Amendments to Australian
Accounting Standards – Group Cash-
settled Share-based Payment Transactions
The Group has prepared the financial
statements in compliance with recent
amendments to the Corporation Act (2001)
in June 2010 which remove the requirement
for the Group to lodge parent entity financial
statements. Parent entity financial statements
have been replaced by the reduced parent entity
disclosure in Note 13.
Australian Accounting Standards issued
but not yet effective/Early adoption of
Australian Accounting Standards
A number of new accounting standards have
been issued but are not yet effective during
the year ending 30 April 2011. The Group
has not elected to early adopt any of these
new standards or amendments in this Financial
Report. The new standard, when applied in
future periods, which is expected to have a
material impact on the financial statements,
is the following:
— AASB 9 ‘Financial instruments: Classification
and measurement’: This standard makes
significant changes to the way that financial
assets are classified for the purpose of
determining their measurement basis and
also to the amounts relating to fair value
changes which are to be taken directly to
equity. AASB 9 is mandatory for adoption
by the Metcash group in the year ending
30 April 2014. The financial impact to the
Metcash group of adopting this standard
has not yet been quantified.
The following accounting standards and
amendments to accounting standards, when
applied in future periods, which are not
expected to have a material impact on the
financial statements, include the following:
— AASB 124 (Revised) – Related Party
Disclosures (December 2009)
— AASB 2009-11 – Amendments to
Australian Accounting Standards arising
from AASB 9
— AASB 2010-3 – Amendments to Australian
Accounting Standards arising from the
Annual Improvements Project
— AASB 2010-4 – Further Amendments to
Australian Accounting Standards arising
from the Annual Improvements Project
— AASB 2010-5 – Amendments to Australian
Accounting Standards
— AASB 2010-6 – Amendments to Australian
Accounting Standards – Disclosures on
Transfers of Financial Assets
— AASB 2010-7 – Amendments to Australian
Accounting Standards arising from AASB 9
(December 2010)
On 12 May 2011, the IASB issued the
following standards:
— IFRS 10 – Consolidated Financial
Statements
— IFRS 11 – Joint Arrangements
— IFRS 12 – Disclosure of Interests in
Other Entities
— IFRS 13 – Fair Value Measurement
These standards have not yet been adopted
by the AASB. Management are in the process
of assessing the expected financial impacts of
these standards which are effective in 2014.
(iii) BASIS OF CONSOLIDATION
The financial statements comprise the
consolidated financial statements of Metcash
Limited and its subsidiaries as at 30 April 2011.
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.
Non-controlling 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.
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(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:
Contractual customer relationships
Identifying those acquired relationships with
customers that meet the definition of separately
identifiable intangibles that have a finite life.
(b) Significant accounting estimates
and assumptions
The carrying amounts of certain assets and
liabilities are often determined based on
estimates and assumptions of future events.
The key estimates and assumptions that have a
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 16.
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.
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.
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.
(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.
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(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:
2011
2010
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 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.
(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 groups of cash-
generating unit 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.
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(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 Metcash Employee Option
Plan (MEOP) and the Metcash Executive and
Senior Managers Performance Rights Plan
(Rights Plan).
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 an appropriate valuation
model, further details of which are given in
Note 17.
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 and performance rights are reflected as
additional share dilution in the computation of
earnings per share.
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.
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 to ten 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.
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(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.
Deferred income tax assets are recognised for
all deductible temporary differences, carry-
forward unused tax assets and unused tax
losses, to the extent that it is probable that
taxable profit will be available against which
the deductible temporary differences, and the
carry-forward of unused tax assets and unused
tax losses can be utilised:
— except where the deferred income tax
asset relating to the deductible temporary
difference arises from the initial recognition
of an asset or liability in a transaction that
is not a business combination and, at the
time of the transaction, affects neither the
accounting nor taxable profit or loss; and
— in respect of deductible temporary
differences associated with investments
in subsidiaries, associates and interests in
joint ventures, deferred tax assets are only
recognised to the extent that it is probable
that the temporary differences will reverse
in the foreseeable future and taxable
profit will be available against which the
temporary differences can be utilised.
The carrying amount of deferred income tax
assets is reviewed at each 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:
— when the GST incurred on a purchase
of goods and services is not recoverable
from the taxation authority, in which case
the GST is recognised as part of the cost
of acquisition of the asset or as part of the
expense item as applicable; and
— receivables and payables which are stated
with the amount of GST included.
The net amount of GST recoverable from, or
payable to, the taxation authority is included
as part of receivables or payables in the
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) FINANCE COSTS
Finance costs are recognised as an expense
when incurred, except finance costs that are
capitalised for acquisition of qualifying assets.
(xxix) RECLASSIFICATION OF PRIOR
YEAR COMPARATIVES
The comparative figures for Administrative
costs in the prior year have been reclassified in
the amount of $14.2 million being the merchant
fee expense under the American Express
charge card program which was previously
classified as Finance Costs.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 65
3 SEGMENT INFORMATION
IDENTIFICATION 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.
During the next financial year, the Group
intends to perform a review of the segment
categories in light of a project that envisages the
consolidation of food and liquor activities within
single state-based distribution centres.
Segment products and locations
The group 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 group.
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 group.
Major Customers
Metcash does not have a single external
customer which represents greater than
10% of the group’s revenue.
buSINESS SEgMENTS
FOOD DISTRIbuTION
CASh AND CARRY
DISTRIbuTION
LIQuOR DISTRIbuTION
hARDwARE
DISTRIbuTION
CONSOLIDATED
2011
$’m
2010
$’m
2011
$’m
2010
$’m
2011
$’m
2010
$’m
2011
$’m
2010
$’m
2011
$’m
2010
$’m
Segment Revenue
Sales to external customers
7,559.9
7,129.9
1,709.9
1,685.3
2,296.6
2,640.6
797.6
61.6 12,364.0 11,517.4
Inter-segment revenues
834.3
772.6
—
—
92.4
102.1
—
—
926.7
874.7
Total segment revenue
8,394.2
7,902.5
1,709.9
1,685.3
2,389.0
2,742.7
797.6
61.6 13,290.7 12,392.1
Segment profit before tax
361.8
346.6
31.8
28.8
30.1
36.1
20.7
1.5
444.4
413.0
i) Segment revenue reconciliation to the statement of comprehensive income
Total segment revenue
Inter-segment revenues elimination
Rent
Interest from other persons/corporations
Total revenue
ii) Segment result reconciliation to the statement of comprehensive income
Segment result
Net finance costs *
Rent income
Rent expense
Share based payments
Restructure of Campbells Wholesale branch network
Franklins acquisition costs
Amortisation of customer relationships and license agreements
Other
2011
$’m
2010
$’m
13,290.7
12,392.1
(926.7)
(874.7)
86.4
11.2
82.5
8.2
12,461.6
11,608.1
2011
$’m
444.4
(66.3)
86.4
(86.4)
(2.6)
—
(6.9)
(7.9)
(3.8)
2010
$’m
413.0
(49.3)
82.5
(82.5)
(2.6)
(15.4)
—
(6.5)
(9.2)
Total profit from continuing operations before income tax
356.9
330.0
* Refer to Note 2 for prior period reclassification
66
N O T E S T O T H E F I N A N C I A L R E P O R T C O N T I N U E D
4 REVENUE AND EXPENSES
(a) Revenue
Sale of goods
Rent
Interest from other persons/corporations
(b) Other income
2011
$’m
2010
$’m
12,364.0
11,517.4
86.4
11.2
82.5
8.2
12,461.6
11,608.1
Net profit/(loss) from disposal of property, plant and equipment
0.3
(0.3)
(c) Other expenses
Depreciation/ amortisation of property, plant and equipment
Amortisation of software and other intangibles
Amortisation of customer relationships and license agreements
Loss from disposal of associate
Impairment of trade receivables
Inventories net realisable value provision
(d) Operating lease rental
Minimum lease payments – warehouse and other
Minimum lease payments – stores
(e) Employee benefits expense
Wages and salaries
Defined contribution plan expense
Workers compensation costs
Share-based payments
Other employee benefits costs
(f) Significant items
Franklins acquisitions costs *
Restructure of Campbells Wholesale Branch network (see Note 21)
(g) Finance costs
Interest expense
Deferred borrowing costs
34.1
11.3
7.9
—
13.6
5.1
94.5
86.4
402.6
31.7
10.5
2.6
4.7
6.9
—
73.9
3.6
77.5
30.2
10.0
6.5
1.3
12.1
7.3
90.8
82.5
382.2
31.5
9.5
2.6
4.5
—
15.4
54.1
3.4
57.5
* On 29 November 2010, the Australian Competition and Consumer Commission (ACCC) commenced proceedings in the Federal Court seeking an injunction
against Metcash’s proceeding with the acquisition of the shares of Interfrank Group Holdings Pty Ltd, the owner of the Franklins chain of supermarkets,
from Pick n Pay Retailers (Pty) Ltd. The Federal Court Hearing concluded on 27 April 2011. Either party has 21 calendar days to file an Appeal after
Judgement. During the current period, Metcash has incurred $6.9 million in relation to the potential acquisition of Franklins. These costs predominantly
comprise legal fees and have been disclosed as a significant item. Refer also to Note 31.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 67
5 INCOME TAX
2011
$’m
2010
$’m
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 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% (2010: 30%)
Expenditure not allowable for income tax purposes
Research and development deduction
Adjustments in respect of current income tax of previous years
88.5
(3.0)
20.6
106.1
356.9
107.1
2.9
(0.9)
(3.0)
Income tax expense reported in the Statement of Comprehensive Income at an effective tax rate of 30% (2010: 30%)
106.1
105.1
(0.3)
(5.1)
99.7
330.0
99.0
1.0
—
(0.3)
99.7
Deferred income tax
Deferred income tax of the Group at 30 April relates to the following:
Deferred tax liabilities
Accelerated depreciation for tax purposes
Intangibles
Other
Set off of deferred tax assets
Deferred tax assets
Provisions
Other
Unutilised tax losses
Set off of deferred tax liabilities
Recognised net deferred tax assets
Opening balance
(Charged)/credited to Statement of Comprehensive Income
Acquisitions/disposals
Closing balance
STATEMENT OF
FINANCIAL POSITION
2011
$’m
2010
$’m
3.2
45.4
0.7
(49.3)
—
53.1
0.4
2.4
(49.3)
6.6
27.2
(20.6)
—
6.6
2.9
46.6
—
(49.5)
—
61.1
12.4
3.2
(49.5)
27.2
16.2
5.1
5.9
27.2
At 30 April 2011, there is no recognised or unrecognised deferred income tax liability (2010: $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 $20 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.
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 of 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.
Refer to Note 31 Contingent Liabilities in respect to amended assessments received by Metcash Limited from the Australian Taxation Office in respect of
prior year transactions.
68
N O T E S T O T H E F I N A N C I A L R E P O R T C O N T I N U E D
6 DIVIDENDS PAID AND PROPOSED
(a) Dividends paid on ordinary shares during the year
(i) Final fully franked dividend for 2010: 15.0c (2009: 14.0c)
(ii)
Interim fully franked dividend for 2011: 11.0c (2010: 11.0c)
Dividends declared (not recognised as a liability as at 30 April 2011)
Final franked dividend for 2011: 16.0c (2010: 15.0c)
(b) Franking credit balance of Metcash Limited
The amount of franking credits available for the subsequent
financial year are:
METCASh gROuP
METCASh LIMITED
2011
$’m
114.8
84.6
199.4
2010
$’m
107.1
84.2
191.3
2011
$’m
114.8
84.6
199.4
2010
$’m
107.1
84.2
191.3
123.0
114.8
123.0
114.8
—
franking account balance as at the end of the financial year at 30% (2010: 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 a distribution to shareholders during the period
128.6
14.3
(52.7)
90.2
97.0
21.8
(49.2)
69.6
(c) Tax rates
The tax rate at which paid dividends have been fully franked is 30% (2010: 30%).
Dividends declared have been fully franked at the rate of 30% (2010: 30%).
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 for the period
Adjustments for:
Depreciation
Amortisation
Net (profit)/loss on disposal of property, plant and equipment
Share of associates’ net loss/(profit)
Dividends received from associates
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
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
2011
$’m
152.9
152.9
2010
$’m
210.6
210.6
250.8
230.3
34.1
19.2
(0.3)
1.7
1.6
3.6
2.6
—
(3.1)
(0.9)
(203.3)
20.6
47.2
(31.3)
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
142.5
294.7
4.1
—
3.2
7.1
8 TRADE AND OTHER RECEIVABLES (CURRENT)
Trade receivables — Securitised (i) (ii)
Trade receivables — Non-securitised (ii)
Allowance for impairment loss
Customer loans (iii)
Allowance for impairment loss
Marketing debtors (iv)
Other receivables (iv)
M E T C A S H A N N U A L R E P O R T 2 0 1 1 69
2011
$’m
694.8
181.3
(20.4)
855.7
32.0
(3.5)
884.2
41.2
81.9
2010
$’m
689.3
198.7
(24.4)
863.6
34.8
—
898.4
39.4
70.2
1,007.3
1,008.0
(i) The group has securitised certain trade receivables 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 group as a consequence of securitisation. At the end of the financial year (refer to
Note 19iii) trade receivables of $694.8 million (2010: $689.3 million) had been securitised as disclosed above, with $320.0 million (2010: $240.0 million) of funds
received. The resultant security margin exceeded the minimum required at that date.
(ii) Trade receivables are non-interest bearing and repayment terms vary by business unit. At 30 April 2011, 92.8% of trade receivables are required to be settled within
30 days and 7.2% of trade receivables have terms extending from 30 days to 84 days. The amount of the allowance for 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. $0.4 million (2010: $4.0 million) of loans are non-interest-bearing.
$31.6 million (2010: $30.8) of loans have a weighted average annual interest rate of 7.95% (2010: 8.13%).
(iv) Marketing debtors and other receivables are non-interest bearing and have repayment terms of less than 12 months.
IMPAIRED TRADE RECEIVABLES AND OTHER RECEIVABLES
During the year ended 30 April 2011 receivables to the value of $14.1 million (2010: $19.2 million) were considered non-recoverable and written off.
As at 30 April 2011 trade receivables and other receivables with a notional value of $23.9 million (2010: $24.4 million) were provided for as impaired.
Movement in the allowance for impairment loss:
As at 1 May
Charge for the year
Accounts written off as non recoverable
Increase due to business acquisition
As at 30 April
2011
$’m
(24.4)
(13.6)
14.1
—
(23.9)
2010
$’m
(22.8)
(12.1)
19.2
(8.7)
(24.4)
DEBTORS AGEING
As at 30 April 2011, the analysis of trade receivables for the Group that were past due but not impaired is as follows:
2011
2010
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
654.4
76.5%
723.7
83.8%
136.1
15.9%
98.2
11.4%
12.3
1.4%
9.6
1.1%
12.4
1.4%
4.2
0.5%
7.2
0.8%
4.1
0.5%
more
thaN 120
$’m
33.3
3.9%
23.8
2.8%
total
$’m
855.7
100.0%
863.6
100.0%
The credit quality of the unimpaired trade receivables is good. Metcash believe that the above trade receivables will be fully recovered.
CUSTOMER LOANS AGEING
As at 30 April 2011, the analysis of customer loans receivable for the Group that were past due but not impaired is as follows:
2011
2010
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
total
$’m
87.7
85.5%
72.5
78.6%
0.0
0.0%
0.5
0.5%
0.3
0.3%
0.6
0.6%
0.3
0.3%
1.5
1.6%
1.0
1.0%
0.4
0.4%
13.2
102.5
13.0%
100.0%
16.9
92.4
18.3%
100.0%
The credit quality of the customer loans is good. As these amounts do not contain impaired assets Metcash believe that the above receivables will be
fully recovered.
70
N O T E S T O T H E F I N A N C I A L R E P O R T C O N T I N U E D
8 T R A D E A N D O T H E R R E C E I VA B L E S ( C U R R E N T ) C O N T I N U E D
OTHER RECEIVABLES AGEING
As at 30 April 2011, the analysis of other receivables for the Group that were past due but not impaired is as follows:
2011
2010
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
126.0
97.1%
110.4
94.0%
2.5
1.9%
4.7
4.0%
1.1
0.8%
1.1
0.9%
0.0
0.0%
0.9
0.8%
0.0
0.0%
0.0
0.0%
more
thaN 120
$’m
0.1
0.1%
0.3
total
$’m
129.7
100.0%
117.4
0.3%
100.0%
The credit quality of the unimpaired other receivables is good. Metcash believe that all the above other receivables will be fully recovered.
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
2011
$’m
28.5
74.0
102.5
2010
$’m
34.8
57.6
92.4
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 2011 was $30.7 million (2010: $27.1 million)
9 INVENTORIES
Total Finished goods inventories at the lower of cost and net realisable value
2011
$’m
2010
$’m
954.9
747.2
Inventory write-downs recognised as an expense totalled $5.1 million (2010: $7.3 million) for the Group. The expense is included in the cost of sales line
item as a cost of inventory.
10 DERIVATIVE FINANCIAL INSTRUMENTS
Current
Interest rate forward contracts (i)
(i) Derivatives are carried at fair value.
11 RECEIVABLES (NON-CURRENT)
Customer loans (i)
Other receivables (ii)
Total
2011
$’m
0.9
0.9
74.0
6.6
80.6
2010
$’m
—
—
57.6
7.8
65.4
(i) Customer loans receivable are non-current and have repayment terms of greater than 12 months. $6.4 million (2010: $7.3 million) of loans are non-interest bearing.
$67.6 million (2010: $50.3 million) of loans have a weighted average annual interest rate of 8.34% (2010: 8.99%). 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 Group are as follows:
Customer loans
Other receivables
Total
carryiNg
amouNt
2011
$’m
74.0
6.6
80.6
carryiNg
amouNt
2010
$’m
57.6
7.8
65.4
fair
value
2011
$’m
76.0
6.6
82.6
fair
value
2010
$’m
58.8
7.8
66.6
The fair values are based on cash flows discounted at a rate reflecting current market rates adjusted for counter party credit risk.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 71
12 INVESTMENTS IN ASSOCIATES
Investments in associates
INTEREST IN ASSOCIATES
priNcipal activities
balaNce date
Abacus Independent Retail
Property Trust
Ritchies Stores Pty Ltd
BMS Retail Group Pty Ltd
Dramet Pty Ltd
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 Ltd
Progressive Trading Pty Ltd
(Progressive) (i)
Sunshine Hardware Pty Ltd
Northern Hardware Pty Ltd
Retail property investment
Grocery retailing
Grocery retailing
Grocery retailing
Grocery retailing
Grocery retailing
Grocery retailing
Grocery retailing
Grocery retailing
Grocery retailing
Grocery retailing
Merchandise services
for Metcash and Foodstuffs
Grocery retailing
Hardware 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 April
30 June
30 June
30 June
2011
$’m
92.1
2010
$’m
94.8
OwNERShIP INTEREST
2011
%
2010
%
25.0
26.0
25.1
26.0
26.0
26.0
26.0
26.0
26.0
26.0
45.0
50.0
55.4
49.0
49.9
25.0
26.0
25.1
26.0
26.0
26.0
26.0
26.0
26.0
26.0
45.0
50.0
55.4
49.0
—
(i) 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.
Share of associates’ profit:
Profit/(loss) before income tax
Income tax benefit/ (expense)
Profit/(loss) after income tax
Share of associates’ Statement of Financial Position:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
2011
$’m
(2.4)
0.7
(1.7)
86.7
150.4
237.1
(130.4)
(46.2)
(176.6)
60.5
2010
$’m
0.4
(0.1)
0.3
61.6
134.4
196.0
(82.7)
(55.8)
(138.5)
57.5
72
N O T E S T O T H E F I N A N C I A L R E P O R T C O N T I N U E D
13 INFORMATION RELATING TO METCASH LIMITED (THE PARENT ENTITY)
In accordance with the amendment to the Corporations Act 2001, the company has replaced the separate parent entity financial statements with the
following note.
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Contributed equity
Retained earnings
Share based payments reserve
Total equity
Net profit for the period
Total comprehensive income for the year, net of tax
Metcash Limited has provided guarantees as part of the Closed Group arrangements as disclosed in Note 26 (c)
14 OTHER FINANCIAL ASSETS (NON-CURRENT)
METCASh LIMITED
2011
$’m
1,562.4
6,178.5
3,462.6
3,462.6
2,715.9
2,570.9
123.0
22.0
2010
$’m
1,314.4
5,930.5
3,237.9
3,237.9
2,692.6
2,558.2
114.9
19.5
2,715.9
2,692.6
207.5
207.5
199.1
199.1
Investment in shares (unlisted)
15 PROPERTY, PLANT AND EQUIPMENT
Year ended 30 April 2011
At 1 May 2010,
net of accumulated depreciation and impairment
Additions
Acquisition from business combination (Refer Note 29)
Disposals
Exchange differences
Depreciation and impairment charge for the year
At 30 April 2011,
2011
$’m
0.2
0.2
laNd aNd
buildiNgs
$’m
plaNt aNd
eQuipmeNt
$’m
64.7
12.1
—
—
—
(1.5)
130.0
26.0
1.3
(2.3)
(0.1)
(32.6)
2010
$’m
0.2
0.2
total
$’m
194.7
38.1
1.3
(2.3)
(0.1)
(34.1)
net of accumulated depreciation and impairment
75.3
122.3
197.6
At 1 May 2010,
Cost or fair value
Accumulated depreciation and impairment
Net carrying amount
At 30 April 2011,
Cost or fair value
Accumulated depreciation and impairment
Net carrying amount
70.0
(5.3)
64.7
82.1
(6.8)
75.3
261.0
(131.0)
130.0
279.0
(156.7)
122.3
331.0
(136.3)
194.7
361.1
(163.5)
197.6
1 5 P R O P E R T Y, P L A N T A N D E Q U I P M E N T C O N T I N U E D
Year ended 30 April 2010
At 1 May 2009,
net of accumulated depreciation and impairment
Additions
Acquisition from business combination
Disposals
Depreciation charge for the year
At 30 April 2010,
M E T C A S H A N N U A L R E P O R T 2 0 1 1 73
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)
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
55.2
(4.6)
50.6
70.0
(5.3)
64.7
269.6
(156.8)
112.8
261.0
(131.0)
130.0
324.8
(161.4)
163.4
331.0
(136.3)
194.7
The carrying value of plant and equipment held under finance leases and hire purchase contracts at 30 April 2011 is $15.8 million (2010: $18.8 million).
16 INTANGIBLE ASSETS AND GOODWILL
Year ended 30 April 2011
At 1 May 2010
Net carrying amount
Additions
Acquisition from business combination (Refer Note 29)
Exchange differences
Amortisation
At 30 April 2011
Net carrying amount
At 30 April 2011
Cost (gross carrying amount)
Accumulated amortisation and impairment
Net carrying amount
Year ended 30 April 2010
At 1 May 2009
Net carrying amount
Additions
Acquisition from business combination
Disposals
Amortisation
At 30 April 2010
Net carrying amount
At 30 April 2010
software
developmeNt
costs
$’m
customer
coNtracts
$’m
goodwill
$’m
trade
Names
$’m
other
$’m
total
$’m
63.1
18.4
—
—
(11.3)
156.3
1,032.8
27.2
2.6
1,282.0
2.4
—
—
(7.6)
—
7.8
(0.3)
—
—
—
—
—
—
—
—
(0.3)
20.8
7.8
(0.3)
(19.2)
70.2
151.1
1,040.3
27.2
2.3
1,291.1
168.6
(98.4)
186.3
1,040.3
(35.2)
—
70.2
151.1
1,040.3
45.7
27.2
—
(0.1)
(9.7)
137.9
15.0
9.9
—
(6.5)
993.6
—
39.2
—
—
27.2
—
27.2
—
—
27.2
—
—
3.0
(0.7)
1,425.4
(134.3)
2.3
1,291.1
2.9
1,180.1
—
—
—
(0.3)
42.2
76.3
(0.1)
(16.5)
63.1
156.3
1,032.8
27.2
2.6
1,282.0
Cost (gross carrying amount)
Accumulated amortisation and impairment
Net carrying amount
150.2
(87.1)
183.9
1,032.8
(27.6)
—
63.1
156.3
1,032.8
27.2
—
27.2
3.0
(0.4)
1,397.1
(115.1)
2.6
1,282.0
74
N O T E S T O T H E F I N A N C I A L R E P O R T C O N T I N U E D
1 6 I N TA N G I B L E A S S E T S A N D G O O D W I L L C O N T I N U E D
(a) DESCRIPTION OF THE GROUP’S 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. Useful lives
range from five to ten years. Software development costs are tested for impairment where an indicator of impairment exists. Useful lifes are also
estimated on an annual basis and adjustments, where applicable, are made on a prospective basis.
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.
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 names will be subjected to impairment testing on an annual basis or whenever there is an indication of
impairment. Impairment testing has been carried out in February 2011. No impairment loss was required to be recognised during the period.
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 is being amortised over 10 years, straight line. The intangible is carried at cost less accumulated amortisation.
(b) IMPAIRMENT TESTS FOR GOODWILL AND INTANGIBLES WITH INDEFINITE USEFUL LIVES
Goodwill
(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 (Food Distribution, Cash and Carry
Distribution, Liquor Distribution and Hardware Distribution). 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. Impairment testing was conducted in February 2011. The
group of cash generating units (CGU) used for impairment testing are as follows:
IGA Distribution, Campbells Wholesale, Australian Liquor Marketers and Mitre 10.
The recoverable amount of the group of CGUs has been determined based on value in use calculation using cash flow projections based on financial
projections covering a five year period.
(ii) Key assumptions used in valuations
The Group has applied the following key assumptions in its cash flow projections:
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 and hardware inflation and changes in market share.
The pre-tax discount rate applied to cash flow projections is 12.93% (2010: 12.67%) and cash flows beyond the five year period are extrapolated using
a 2.5% growth rate (2010: 2.5%) which is based on the historical population and applicable product inflation and growth rates for each group of CGU’s.
(iii) Sensitivity to changes in assumptions
The table below summarises the Goodwill attributed to each group of CGU’s and potential impairment trigger point at the impairment testing date of
February 2011:
group of cgu’s
IGA Distribution
Campbells Wholesale
Australian Liquor Marketers
Mitre 10
goodwill
$’m
885.1
32.9
88.9
27.8
discouNt rate
at which impairmeNt
is triggered
%
*
14.39%
13.26%
17.30%
* 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
Trade Names
(i) Trade names only arise in the Mitre 10 segment as in the Mitre 10 segment as a result the acquisitions during financial year 2010.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 75
1 6 I N TA N G I B L E A S S E T S A N D G O O D W I L L C O N T I N U E D
(ii) Key assumptions used in valuations
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.
(iii) Sensitivity to changes in assumptions
No reasonably possible change in any of the above key assumptions would cause the carrying value of the trade names to materially exceed its
recoverable amount.
17 SHARE-BASED PAYMENTS
(a) TYPES OF SHARE-BASED PAYMENT PLANS
The Group has two share-based incentive plans for employees and executive directors of the Group: the Metcash Employees Option Plan (MEOP) and
the Metcash Executives and Senior Managers Performance Rights Plan (Rights Plan). Fully paid ordinary shares issued under these plans rank equally
with all other existing fully paid ordinary shares, in respect of voting and dividends rights.
Metcash Employee Option Plan (MEOP)
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 reorganisation of the share capital of the Company.
Metcash Executives and Senior Managers Performance Rights Plan (Rights Plan)
The Rights Plan provides selected employees with the opportunity to be rewarded with fully paid ordinary shares as an incentive to create long term
growth in value for Metcash shareholders. The plan is administered by a trustee who may acquire (and hold in trust) shares for the benefit of participants.
These shares are purchased on market or issued to the trustee once the performance rights vest.
The essential elements of the Rights Plan are as follows:
— each Performance Right is an entitlement to receive a fully paid ordinary share in the Company on terms and conditions determined by the Board,
including vesting conditions linked to service and performance over a 3 year period;
— Performance Rights are offered at no cost to the Senior Executive/Senior Manager and as such, significantly fewer Performance Rights are offered
than was the case with options;
— Performance Rights are offered annually with vesting after 3 years subject to achievement of hurdle rates. For the 2011 financial year this was set between
5% and 10% compound underlying earnings per share growth. (i.e. 5% underlying earnings per share growth earns 50% of the Performance Rights
allocation and 10% underlying earnings per share growth earns 100% of the allocation). Pro rata payments are to be made for achievements between 5%
and 10%. If the vesting conditions are satisfied, the Performance Rights vest and shares will be issued to the Executive or Senior Manager;
— underlying earnings per share is calculated on the company’s underlying profit, adjusted for non-recurring and significant items such as goodwill
impairment or amortisation, or other non cash accounting items;
— persons offered Performance Rights will not be offered options under the MEOP or any other form of long term incentive;
— Performance Rights do not carry voting or dividend rights, however shares issued upon vesting of Performance Rights will carry the same rights as
other ordinary shares;
— the number of Performance Rights granted is determined by dividing the value of an Executive’s/Senior Manager’s long term incentive entitlement by
the Company’s share price at the time of issue.
76
N O T E S T O T H E F I N A N C I A L R E P O R T C O N T I N U E D
1 7 S H A R E - B A S E D PAY M E N T S C O N T I N U E D
(b) SUMMARY OF OPTIONS AND RIGHTS GRANTED
MEOP
During the year no options were issued to Executive Directors (2010: nil), as disclosed in Note 27 (b).
The following table illustrates the number of options and exercise prices and movements during the year ended 30 April 2011 and 30 April 2010:
2011
Number
2011
exercise price
$
2010
Number
2010
exercise price
$
Outstanding at the beginning of the year
30,235,024
32,202,323
Reinstated during the year
Exercised during the year:
Expired during the year
Outstanding at the end of the year
The outstanding balance as at 30 April 2011 is represented by:
17,700
Various
8,920
Various
—
(1,649,613)
(1,560,000)
(2,916,790)
—
3.925
4.013
(340,000)
(415,668)
—
2.430
3.925
—
Various
(1,220,551)
Various
24,126,321
—
30,235,024
—
expiry date
2 September 2011
2 September 2011
7 February 2014
exercise price
Number
exercisable
$4.013
$3.925
2,110,000
5,721,078
$4.267
16,295,243
1,480,000
5,721,078
9,777,146
Rights Plan
The following table illustrates the movement in the number of Performance Rights during the year ended 30 April 2011:
Outstanding at the beginning of the year
Granted during the year
Vested during the year
Expired/forfeited during the year
Outstanding at the end of the year
The Performance Rights all expire on 30 June 2013 at which point they either convert or lapse, as per the terms of the Rights Plan.
The Performance Rights have a remaining contractual life of 2.2 years.
(c) Weighted average fair value
The weighted average fair value of Performance Rights granted during the year was $3.62 per Performance Right (2010: nil).
(d) Option pricing model
The Performance Rights issued have been valued using the Black Scholes option pricing model.
The following table lists the inputs to the valuation model for the year ending 30 April 2011:
Dividend yield
Risk free rate
Expected volatility
Life of Performance Rights
Exercise price
Share price at measurement date
remaiNiNg
coNtractual
life (years)
0.3
0.3
2.8
2011
Number
—
1,415,137
—
(15,752)
1,399,385
2011
6.19%
5.36%
16.63%
940 days
—
$4.20
M E T C A S H A N N U A L R E P O R T 2 0 1 1 77
18 TRADE AND OTHER PAYABLES (CURRENT)
Trade payables
Accrued GST/Wine equalisation tax
Accrued marketing expenses
Accrued purchases and payroll expense
Other payables
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 approximates their fair value.
19 INTEREST BEARING LOANS AND BORROWINGS
Current
Finance lease obligation (i)
Non-current
Finance lease obligation (i)
Bank loans — syndicated (ii)
Debt securitisation (iii)
Deferred borrowing costs
2011
$’m
2010
$’m
1,205.4
1,110.1
25.8
52.2
81.6
11.5
42.2
49.3
78.9
13.9
1,376.5
1,294.4
2011
$’m
8.6
8.6
11.5
500.0
320.0
(5.0)
826.5
2010
$’m
7.8
7.8
16.4
500.0
240.0
(7.0)
749.4
(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 9.47% (2010: 8.71%). 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 31 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 Net Rent (EBITDAR) divided by Total Net Interest plus Net 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 quarterly. The applicable margin is dependent upon an escalation matrix linked to
the senior leverage ratio achieved.
(iii) The securitisation facility is evergreen in nature, subject to the periodic renewal of liquidity support. The facility 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.
(a) FAIR VALUE
The carrying amount of the Group’s current and non-current borrowings approximate their fair value. The weighted average effective interest rate on
bank loans and debt securitisation for the year was 6.18% (2010: 6.45%).
(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 are disclosed in Note 24.
20 DERIVATIVE FINANCIAL INSTRUMENTS
Current
Foreign currency forward contracts (i)
(i) Derivatives that are designated and effective as hedging instruments are carried at fair value.
2011
$’m
1.4
1.4
2010
$’m
0.6
0.6
78
N O T E S T O T H E F I N A N C I A L R E P O R T C O N T I N U E D
21 PROVISIONS
Current
Employee entitlements
Rental subsidy (i)
Restructuring (ii)
Other
Non-current
Employee entitlements
Rental subsidy (i)
Total
(a) MOVEMENTS IN PROVISIONS (OTHER THAN EMPLOYEE ENTITLEMENTS)
1 May 2010
Arising during the year
Utilised
Unused amounts released
30 April 2011
reNtal
subsidy
$’m
38.5
2.0
(5.3)
(0.8)
34.4
restructuriNg
$’m
14.8
1.5
(12.6)
—
3.7
2011
$’m
60.5
8.9
3.7
0.3
73.4
28.7
25.5
54.2
2010
$’m
77.5
6.8
14.8
0.7
99.8
30.0
31.7
61.7
127.6
161.5
other
$’m
0.7
—
(0.4)
—
0.3
total
$’m
54.0
3.5
(18.3)
(0.8)
38.4
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.
22 OTHER FINANCIAL LIABILITIES
Current
Lease incentives
Non-current
Lease incentives
2011
$’m
0.2
0.2
1.8
1.8
2010
$’m
0.2
0.2
1.9
1.9
M E T C A S H A N N U A L R E P O R T 2 0 1 1 79
23 CONTRIBUTED EQUITY AND RESERVES
a) Ordinary shares:
Issued and fully paid
Movements in ordinary shares on issue
At 1 May
Issued during the year:
2011
$’m
2010
$’m
1,904.9
1,904.9
1,892.2
1,892.2
2011
2010
Number of
shares
$’m
Number of
shares
$’m
765,644,031
1,892.2
764,888,363
1,889.7
– Exercise of employee options – At 392.5 cents per share
– Exercise of employee options – At 243.0 cents per share
– Exercise of employee options – At 401.3 cents per share
1,649,613
—
1,560,000
6.4
—
6.3
415,668
340,000
—
1.7
0.8
—
At 30 April
768,853,644
1,904.9
765,644,031
1,892.2
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
RESERVES
At 1 May 2009
Foreign currency translation adjustments
Share-based payments
Movement in fair value of derivatives
At 30 April 2010
Foreign currency translation adjustments
Share-based payments
Movement in fair value of derivatives
At 30 April 2011
Nature and purpose of reserves
share-
based
paymeNts
$’m
17.1
—
2.6
—
19.7
—
2.6
—
22.3
capital
profits
$’m
12.8
—
—
—
12.8
—
—
—
12.8
cash flow
hedge
reserve
$’m
foreigN
curreNcy
traNslatioN
$’m
—
—
—
(0.1)
(0.1)
—
—
0.1
—
(6.0)
(0.6)
—
—
(6.6)
(0.3)
—
—
(6.9)
total
$’m
23.9
(0.6)
2.6
(0.1)
25.8
(0.3)
2.6
0.1
28.2
Share-based payments reserve
This reserve is used to record the value of equity benefits provided to employees and executive directors as part of their remuneration. Refer to Note 17
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 for the period
Dividends
At 30 April
Other equity
At 30 April
2011
$’m
2010
$’m
166.0
241.4
(199.4)
208.0
129.7
227.6
(191.3)
166.0
(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. Refer also
Note 2(a)(iv).
80
N O T E S T O T H E F I N A N C I A L R E P O R T C O N T I N U E D
24 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
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.
On 9 June 2010, the Group has entered into a number of interest rate swap contracts with various major Australian banks. The principal hedged is
$300 million with a weighted hedge maturity of 2 years and a weighted average interest rate of 5.13%. The Group considers that these derivatives are
effective hedges in accordance with AASB 139 Financial Instruments: Recognition and Measurement and therefore accounted for as cash flow hedges
in accordance with the Group’s stated accounting policies.
At balance date, the Group had the following mix of financial assets and liabilities exposed to Australian variable interest rate risk that, except as
indicated, are not designated in cash flow hedges:
Financial assets
Cash and cash equivalents
Financial liabilities
Bank loans
Debt securitisation
Less: Interest rate swaps notional principal value — designated as cash flow hedges
Net exposure
Refer to Note 19 for details of bank loans and debt securitisation.
2011
$’m
152.9
152.9
(500.0)
(320.0)
300.0
(520.0)
(367.1)
2010
$’m
210.6
210.6
(500.0)
(240.0)
—
(740.0)
(529.4)
The Group’s treasury policy requires that core debt is hedged between a minimum and maximum range over certain maturity periods.
Core debt is defined as the minimum level of drawn debt which is expected to occur over the year.
As at 30 April 2011, the interest rate swap hedges of $300 million fell within the required range.
The interest rate swap contracts noted above have a fair value of $0.9 million (2010: nil) and are exposed to fair value movements if interest
rates change.
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, given 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)
If interest rates were to decrease by 0.25% (25 basis points)
PROFIT AFTER TAX
hIghER/(LOwER)
OThER
COMPREhENSIvE INCOME
hIghER/(LOwER)
2011
$’m
(1.3)
0.6
2011
$’m
(1.9)
0.9
2010
$’m
2.9
(1.5)
2010
$’m
—
—
The movements in profit are due to higher/lower interest costs from variable rate banking and other loans. The movement in other comprehensive
income is due to cashflow hedge fair value adjustments on interest rate swap contracts.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 81
2 4 F I N A N C I A L R I S K M A N A G E M E N T O B J E C T I V E S A N D P O L I C I E S C O N T I N U E D
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 four different
sources of debt funding, of which 64.0% have been utilised at 30 April 2011.
Remaining contractual maturities
Remaining contractual liabilities consist of non-interest bearing trade and other payables amounting to $1,376.5 million for the Group and are due in 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.
year eNded 30 april 2011
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
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
1 year
or less
$’m
152.9
1,007.3
—
1,160.2
1,376.5
8.9
50.1
1,435.5
1 year
or less
$’m
210.6
1,008.0
—
1,218.6
1,294.4
9.6
47.6
1,351.6
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:
Syndicated facility
Securitisation facility
Working capital/guarantees
Working capital
Cash and cash equivalents
total
facility
$’m
700.0
400.0
150.0
75.0
1,325.0
—
1,325.0
debt
usage
$’m
guaraNtees aNd
other usage
$’m
500.0
320.0
—
—
820.0
—
820.0
—
—
28.6
—
28.6
—
28.6
1–5 years
$’m
more thaN
5 years
$’m
—
80.6
0.9
81.5
—
14.2
819.5
833.7
—
—
—
—
—
—
—
—
1–5 years
$’m
more thaN
5 years
$’m
—
65.4
—
65.4
—
18.6
792.5
811.1
—
—
—
—
—
—
—
—
cash
$’m
—
—
—
—
—
152.9
152.9
total
$’m
152.9
1,087.9
0.9
1,241.7
1,376.5
23.1
869.6
2,269.2
total
$’m
210.6
1,073.4
—
1,284.0
1,294.4
28.2
840.1
2,162.7
facility
available
$’m
200.0
80.0
121.4
75.0
476.4
152.9
629.3
82
N O T E S T O T H E F I N A N C I A L R E P O R T C O N T I N U E D
2 4 F I N A N C I A L R I S K M A N A G E M E N T O B J E C T I V E S A N D P O L I C I E S C O N T I N U E D
Derivative financial liabilities
The table below details the liquidity risk arising from derivative liabilities held by the Group at the reporting date.
Year ended 30 April 2011
Derivative liabilities — net settled
Derivative liabilities — gross settled
—
Inflows
— Outflows
Net maturity
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
—
11.0
(12.0)
(1.0)
—
8.3
(8.9)
(0.6)
—
3.2
(3.6)
(0.4)
—
1.3
(1.3)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
total
$’m
—
14.2
(15.6)
(1.4)
—
9.6
(10.2)
(0.6)
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 2.1% of the receivables balance,
indicating that the balances are actively and effectively managed.
There are no significant concentrations of credit risk within the Group.
FOREIGN CURRENCY RISK
The Groups exposure to foreign exchange fluctuations relates to transactions and balances in New Zealand dollars. The operations denominated
in New Zealand dollars represent less than 5% of total sales and total profit after tax, and as such exposure is minimal.
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 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 these benefits in the form
of the Metcash Employee Option Plan (MEOP) and the Metcash Executive and Senior Managers Performance Rights Plan (Rights Plan). Details are
disclosed in Note 17.
The Board and management set out to achieve and maintain Statement of Financial Position ratios that would satisfy an investment grade rating. Certain
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 monitor capital through the gearing ratio (debt / total capital). The gearing ratios at 30 April 2011 and 2010 were 36.7% and 35.5%
respectively. This is within an acceptable target range.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 83
2 4 F I N A N C I A L R I S K M A N A G E M E N T O B J E C T I V E S A N D P O L I C I E S C O N T I N U E D
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 2011
Derivative financial assets
Derivative financial liabilities
year eNded 30 april 2010
Derivative financial liabilities
level 1
$’m
—
—
—
level 1
$’m
—
—
level 2
$’m
0.9
(1.4)
(0.5)
level 2
$’m
(0.6)
(0.6)
level 3
$’m
—
—
—
level 3
$’m
—
—
total
$’m
0.9
(1.4)
(0.5)
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.
25 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 8.41%. Contingent rentals are payable to reflect movements in the Consumer Price Index on certain leases and to reflect the turnover of
certain stores occupying the land and buildings. Future minimum rentals payable under non-cancellable operating leases as at 30 April are as follows:
Within 1 year
After 1 year but not more than 5 years
More than 5 years
2011
$’m
158.5
552.6
389.8
2010
$’m
148.7
481.2
449.9
Aggregate lease expenditure contracted for at reporting date
1,100.9
1,079.8
(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 8.41%. 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
2011
$’m
73.8
283.7
257.5
615.0
2010
$’m
58.5
201.3
233.1
492.9
(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 9.47% (2010:
8.71%). 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
2011
$’m
8.9
14.2
—
23.1
(3.0)
20.1
2010
$’m
9.6
18.6
—
28.2
(4.0)
24.2
2011
$’m
8.6
11.5
—
20.1
—
20.1
2010
$’m
7.8
16.4
—
24.2
—
24.2
84
N O T E S T O T H E F I N A N C I A L R E P O R T C O N T I N U E D
26 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
COuNTRY OF INCORPORATION
PERCENTAgE OF EQuITY INTEREST
hELD bY ThE CONSOLIDATED ENTITY
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.
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Cornerstone Retail Pty Ltd (formerly NZ Holdco Limited) (ii)
Australia
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
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)
Jewel Food Stores Pty. Ltd.
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
2011
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
2010
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
M E T C A S H A N N U A L R E P O R T 2 0 1 1 85
2 6 R E L AT E D PA R T Y D I S C L O S U R E C O N T I N U E D
NAME
COuNTRY OF INCORPORATION
PERCENTAgE OF EQuITY INTEREST
hELD bY ThE CONSOLIDATED ENTITY
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.
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.
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
Soetensteeg 2 61 Exploitatiemaatschappij BV
Netherlands
SR Brands Pty Ltd
Stonemans (Management) Proprietary Limited
Stonemans Self Service Pty. Ltd.
Tasher No 8 Pty. Ltd.
Tasman Liquor Company Limited
Vawn No 3 Pty. Ltd.
Wickson Corporation Pty Limited
Wimbledon Unit Trust
Australia
Australia
Australia
Australia
New Zealand
Australia
Australia
Australia
2011
%
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
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
2010
%
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
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
86
N O T E S T O T H E F I N A N C I A L R E P O R T C O N T I N U E D
2 6 R E L AT E D PA R T Y D I S C L O S U R E C O N T I N U E D
* Mittenmet Limited
The consolidated financial statements include the financial statements of Mittenmet Limited and the subsidiaries listed in the following table.
NAME
COuNTRY OF INCORPORATION
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
Echuca Hardware Pty Ltd
Handyman Stores Pty Ltd
Hardware Property Trust
Himaco Pty Ltd
Lilydale Operations Pty Limited
Mega Property Management Pty Ltd
Mitre 10 Pty Ltd (formerly Mitre10 Limited)
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Mitre 10 Australia Pty Ltd (formerly Mitre10 Australia Ltd)
Australia
Mitre 10 Mega Pty Ltd
Narellan Hardware Pty Ltd
National Retail Support Services Pty Ltd
South Coast Operations Pty Ltd
South West Operations Pty Ltd
Sydney Importing Co Limited (In Liquidation)
Timber and Hardware Exchange Pty Ltd
WA Hardware Services Pty Ltd
(b) ULTIMATE PARENT
Metcash Limited is the ultimate parent entity.
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
PERCENTAgE OF EQuITY INTEREST
hELD bY MITTENMET LTD
2011
%
2010
%
99.44
99.44
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
97.65
52.00
100
97.65
52.00
100
(c) ENTITIES SUBJECT TO CLASS ORDER RELIEF
Pursuant to an order from ASIC under section 340(1) of the Corporations Act dated 26 April 2006 which is based on Class Order 98/1418 (Order), relief
has been granted to certain controlled entities of Metcash Limited, being those marked (i), from the Corporations Act requirements for preparation, audit
and lodgment of their 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.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 87
2 6 R E L AT E D PA R T Y D I S C L O S U R E C O N T I N U E D
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
Net profit for the period
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 and goodwill
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Interest-bearing loans and borrowings
Income tax payable
Provisions
Total current liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Provisions
Total non-current liabilities
Total liabilities
NET ASSETS
EQUITY
Contributed equity
Other equity
Reserves
Retained profits
TOTAL EQUITY
CLOSED gROuP
2011
$’m
2010
$’m
314.5
(94.3)
220.2
161.5
(199.4)
182.3
116.9
829.2
907.8
7.2
320.4
(98.8)
221.6
131.2
(191.3)
161.5
177.3
752.3
755.3
4.9
1,861.1
1,689.8
80.6
65.4
2,547.5
2,450.4
92.9
17.8
127.0
14.3
1,045.9
1,036.8
3,784.7
3,693.9
5,645.8
5,383.7
1,101.9
1,078.5
6.6
12.0
31.6
5.1
43.5
32.8
1,152.1
1,159.9
3,117.0
2,886.5
20.3
17.2
3,137.3
2,903.7
4,289.4
4,063.6
1,356.4
1,320.1
1,904.9
(765.9)
35.1
182.3
1,892.2
(765.9)
32.3
161.5
1,356.4
1,320.1
88
N O T E S T O T H E F I N A N C I A L R E P O R T C O N T I N U E D
(d) TRANSACTIONS WITH RELATED PARTIES
related party
Group
Associates
Sales to associates
Dividends received from associates
sales to
related parties
$’m
purchases from
related parties
$’m
other traNsactioNs
with related parties
$’m
2011
2010
2011
2010
1,236.5
1,224.5
—
—
—
—
—
—
—
—
1.6
2.0
Other transactions with Key Management Personnel
Mr Barnes is Chairman of Samuel Smith and Sons Pty Ltd and a Director of Ansell. Mrs Balfour is a director of Salmat Limited. All organisations are
suppliers to the Group under normal commercial terms and conditions. The total level of purchases from all 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 (2010: nil).
Subsidiaries
Dividend received
Current tax payable/ (receivable)
assumed from wholly owned
consolidated entities
Management fees received
Interest accrued
2011
2010
2011
2010
2011
2010
2011
2010
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
199.1
16.9
43.6
461.3
177.3
251.1
174.7
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 agreement are set out in Note 5.
(e) AMOUNTS DUE FROM OR PAYABLE TO RELATED PARTIES
related party
Group
Associates
Trade receivables
Loans receivable
Parent
Subsidiaries
Loans receivable
Loans payable
2011
$’m
2010
$’m
139.7
56.3
105.9
46.2
1,562.4
3,445.7
1,314.4
3,194.3
Terms and conditions of amounts due from and payable to related parties
Loans and trade receivables are due and payable on normal commercial terms and conditions.
For the year ending 30 April 2011, the Group has not made any allowance for impairment loss relating to trade receivables or loans due from associates.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 89
27 DIRECTORS’ AND EXECUTIVES’ DISCLOSURES
(a) Details of Key Management Personnel
directors
executives
Carlos S dos Santos (i)
Former Non-executive Chairman
Ken Bean
CEO Group Logistics and Corporate Development
Peter L Barnes
Andrew Reitzer
Non-executive Chairman
Fergus Collins
CEO Australian Liquor Marketers
Chief Executive Officer
Peter Dubbelman
CEO Campbells Wholesale
Fiona E Balfour (ii)
Non-executive Director
Adrian Gratwicke (iv)
Chief Financial Officer
Michael R Butler
Non-executive Director
Bernard Hale
Chief Information Officer
Neil D Hamilton
Non-executive Director
Michael Jablonski (v)
Group Merchandise Director
Edwin M Jankelowitz (iii)
Non-executive Director
David Johnston
Chief Human Resources Officer
Richard A Longes
Non-executive Director
Mark Laidlaw
CEO Mitre10
V Dudley Rubin
Non-executive Director
Silvestro Morabito
CEO IGA Distribution
Harry Rumpler
Greg Watson (vi)
CEO IGA Fresh
General Counsel and Company Secretary
(i) Mr dos Santos retired from the Metcash Board on 2 September 2010 and was not considered a Key Management Personnel subsequent to this date.
(ii) Mrs Balfour was appointed to the Metcash Board on 16 November 2010.
(iii) Mr Jankelowitz retired as Finance Director on 31 March 2011 and became a non-executive Director on 1 April 2011
(iv) Mr Gratwicke appointed Chief Financial Officer on 17 January 2011
(v) Mr Jablonski retired from the Metcash Board on 2 September 2010 and continues in his Executive role as Group Merchandise Director.
(vi) Mr Watson appointed General Counsel and Company Secretary on 24 December 2010
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) (i) OPTION HOLDING OF KEY MANAGEMENT PERSONNEL (MEOP)
30 april 2011
Directors
C S dos Santos (i)
P Barnes
M Butler
F Balfour
R Longes
D Rubin
A Reitzer
M Jablonski (ii)
E Jankelowitz (iii)
Executives
K Bean
F Collins
P Dubbelman
A Gratwicke
B Hale
M Laidlaw (iv)
D Johnston
S Morabito
H Rumpler
G Watson (iv)
Total
balaNce at
begiNNiNg of
period 1 may 2010
graNted as
remuNeratioN
optioNs
exercised
other
adjustmeNts
balaNce
at eNd of
period
30 april 2011
vESTED AT 30 APRIL 2011
total
exercisable
—
—
—
—
—
—
1,200,000
650,000
650,000
400,000
50,000
400,000
543,000
650,000
—
400,000
399,700
550,000
—
5,892,700
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(520,000)
(520,000)
—
—
(400,000)
(33,000)
—
—
(320,000)
(12,575)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,200,000
1,200,000
960,000 1
130,000
130,000
130,000
130,000
— 1
— 1
400,000
400,000
400,000
50,000
50,000
50,000
—
—
—
510,000
310,000
310,000
650,000
650,000
520,000 1
400,000
400,000
260,000
260,000
—
—
—
80,000
80,000
80,000
387,125
247,125
247,125
550,000
350,000
350,000
362,000
362,000
222,000
222,000
(1,805,575)
762,000
4,849,125
4,029,125 3,399,125
(i) Mr dos Santos retired from the Metcash Board on 2 September 2010.
(ii) Mr Jablonski retired from the Metcash Board on 2 September 2010 and continues in his Executive role as Group Merchandise Director.
(iii) Mr Jankelowitz retired as Finance Director on 31 March 2011 and was appointed Non-Executive Director on 1 April 2011.
(iv) Mr Laidlaw and Mr Watson were appointed to key management personnel roles during the year. Their option holdings at the time of appointment are shown
1
as other adjustments.
Final 20% of the options granted in 2005 did not meet the performance hurdle and did not vest. These options will be cancelled from the register on
2 September 2011.
90
N O T E S T O T H E F I N A N C I A L R E P O R T C O N T I N U E D
2 7 D I R E C T O R S ’ A N D E X E C U T I V E S ’ D I S C L O S U R E S C O N T I N U E D
30 april 2010
Directors
C S dos Santos
P Barnes
M Butler
R Longes
D Rubin
A Reitzer
M Jablonski
E Jankelowitz
L Jardin (i)
Executives
K Bean
F Collins
P Dubbelman
A Gratwicke
B Hale
D Johnston
S Morabito (ii)
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)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
400,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,200,000
960,000
960,000
650,000
520,000
520,000
650,000
520,000
520,000
650,000
520,000
520,000
400,000
320,000
320,000
50,000
40,000
40,000
400,000
320,000
320,000
543,000
33,000
33,000
650,000
520,000
520,000
400,000
320,000
320,000
399,700
550,000
39,700
39,700
40,000
40,000
(347,300)
400,000
6,542,700
4,152,700 4,152,700
(i) Mr Jardin resigned from the Metcash Board on 9 February 2010 and ceased to be a key management person at this time.
(ii) Mr Morabito was appointed CEO IGA Distribution 17 February 2010. Mr Morabito held 400,000 options prior to his appointment, these are reflected as
other adjustments.
(b) (ii) PERFORMANCE RIGHTS HOLDING OF KEY MANAGEMENT PERSONNEL
30 april 2011
Directors
P Barnes
M Butler
F Balfour
R Longes
D Rubin
A Reitzer
M Jablonski (i)
E Jankelowitz (ii)
Executives
K Bean
F Collins
P Dubbelman
A Gratwicke
B Hale
D Johnston
M Laidlaw
S Morabito
H Rumpler
G Watson
Total
balaNce at
begiNNiNg
of period
1 may 2010
graNted as
remuNeratioN
balaNce at
eNd of period
30 april 2011
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
70,171
70,171
—
—
58,159
53,923
54,514
59,770
58,053
45,728
49,166
70,171
42,479
23,628
58,159
53,923
54,514
59,770
58,053
45,728
49,166
70,171
42,479
23,628
585,762
585,762
(i) Mr Jablonski retired from the Metcash Board on 2 September 2010 and continues in his Executive role as Group Merchandise Director.
(ii) Mr Jankelowitz retired as Finance Director on 31 March 2011 and was appointed non-executive Director on 1 April 2011.
M E T C A S H A N N U A L R E P O R T 2 0 1 1 91
2 7 D I R E C T O R S ’ A N D E X E C U T I V E S ’ D I S C L O S U R E S C O N T I N U E D
(c) SHAREHOLDING OF KEY MANAGEMENT PERSONNEL
30 april 2011
Directors
C S dos Santos (i)
P Barnes
A Reitzer
F Balfour (iv)
M Butler
N Hamilton
M Jablonski (ii)
E Jankelowitz (iii)
R Longes
D Rubin
Executives
K Bean
F Collins
P Dubbelman
A Gratwicke
B Hale
D Johnston
M Laidlaw
S Morabito
H Rumpler
G Watson
Total
balaNce at
begiNNiNg
of period
1 may 2010
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
—
—
3,307,937
graNted as
remuNeratioN
oN market
trade
optioNs
exercised
other
adjustmeNts
balaNce
at at eNd
of period
30 april 2011
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(520,000)
(520,000)
520,000
520,000
—
—
—
—
(400,000)
(25,000)
(110,000)
(320,000)
—
—
—
—
—
—
—
—
400,000
33,000
—
320,000
—
12,575
—
—
—
—
—
54,100
177,083
1,750,000
13,600
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
13,600
50,000
20,000
—
320,000
128,154
15,000
—
1,600
50,350
53,950
500,000
80,000
—
18,275
—
—
(1,895,000)
1,805,575
13,600
3,232,112
(i) Mr dos Santos retired from the Metcash Board on 2 September 2010.
(ii) Mr Jablonski retired from the Metcash Board on 2 September 2010 and continues in his Executive role as Group Merchandise Director.
(iii) Mr Jankelowitz retired as Finance Director on 31 March 2011 and was appointed Non-Executive Director on 1 April 2011.
(iv) Mrs Balfour was appointed to the Metcash Board on 16 November 2010. Her shareholding as at that date is reflected as an other adjustment.
30 april 2010
Directors
C S dos Santos
P Barnes
A Reitzer
M Butler
N Hamilton
M Jablonski
E Jankelowitz
L Jardin (i)
R Longes
D Rubin
Executives
K Bean
F Collins
P Dubbelman
A Gratwicke
B Hale
D Johnston
S Morabito (ii)
H Rumpler
Total
balaNce at
begiNNiNg
of period
1 may 2009
54,100
177,083
1,750,000
50,000
—
—
520,000
—
128,154
15,000
—
1,600
400,350
35,242
270,000
80,000
—
—
3,481,529
graNted as
remuNeratioN
oN market
trade
optioNs
exercised
other
adjustmeNts
—
—
—
—
20,000
—
(200,000)
—
—
—
—
—
(350,000)
3,708
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,000
340,000
—
300
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,400
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
balaNce
at at eNd
of period
30 april 2010
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
—
(i) Mr Jardin resigned from the Metcash Board on 9 February 2010 and ceased to be a key management personnel at this time.
(ii) Mr Morabito was appointed CEO IGA Distribution 17 February 2010. Mr Morabito held 5,400 shares prior to his appointment, these are reflected as
other adjustments.
(526,292)
347,300
5,400
3,307,937
92
N O T E S T O T H E F I N A N C I A L R E P O R T C O N T I N U E D
2 7 D I R E C T O R S ’ A N D E X E C U T I V E S ’ D I S C L O S U R E S C O N T I N U E D
(d) COMPENSATION BY CATEGORY
Short-term
Long-term
Post employment
Termination benefits
Share-based payments
Total
2011
$’m
13.5
3.2
0.3
0.6
0.4
18.0
2010
$’m
12.3
3.0
0.2
—
0.4
15.9
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.
(e) LOANS TO KEY MANAGEMENT PERSONNEL
During the year, Metcash Limited provided a loan to H Rumpler of $93,500 repayable within 5 months at an interest rate of 6.65%. The loan was repaid
during the year.
There are no other transactions and balances with key management personnel.
28 AUDITORS REMUNERATION
Amounts received or due and receivable by Ernst & Young (Australia) for:
— an audit or review of the financial report of the entity and any other entity in the consolidated entity
1,553,000
1,455,300
— other services in relation to the entity and any other entity
2011
$
2010
$
in the consolidated entity
—
tax compliance
— assurance related
Amounts received or due and receivable by related practices of Ernst & Young (Australia) for:
—
tax compliance
1,585,323
1,237,065
129,900
311,255
66,648
10,230
3,334,871
3,013,850
M E T C A S H A N N U A L R E P O R T 2 0 1 1 93
29 BUSINESS COMBINATIONS
CURRENT YEAR BUSINESS COMBINATIONS
The Group acquired the trade and assets of the following entities:
date of acQuisitioN
24 May 2010
14 September 2010
30 June 2010
30 September 2010
9 March 2011
8 February 2011
16 November 2010
eNtity purchased
Cellarbrations at Sunbury Victoria (Sunbury)
Cellarbrations at Cottlesloe Western Australia (Cottlesloe)
G W & V Wise Pty Ltd (Echuca)
Wallington Hardware & Timber Pty Ltd (Wallington)
Club Partners
Mitre 10 Bega, Eden and Pambulla (Sapphire Coast)
Mitre 10 Narellan (Narellan)
% acQuired
100% (1)
100% (1)
100% (1) (2)
100% (1) (2)
100% (1)
100% (1) (2)
100% (1) (2)
(1) Acquisitions of business assets
(2) Acquisitions made by Mittenmet Limited Group — Mitre10
Details of the fair value of the assets and liabilities acquired are as follows:
(a) Purchase consideration:
Cash paid to date
Total purchase consideration
Less cash acquired
Net purchase consideration
Fair value of net identifiable assets acquired (b)
Goodwill
(b) Assets and liabilities acquired
The assets and liabilities arising from the acquisition are as follows:
Trade and other receivables
Assets held for sale
Property, plant and equipment
Inventory
Other assets
Creditors and employee benefits provision
Fair value of net identifiable assets acquired
total
$’m
14.9
14.9
—
14.9
(13.1)
1.8
0.2
5.3
1.3
6.6
0.4
(0.7)
13.1
The fair value of the identifiable assets and liabilities of Sunbury, Cottlesloe, Echuca, Wallington, Club Partners, Sapphire Coast and Narellan
approximated their carrying values at the dates of acquisition.
The results of Sunbury, Cottlesloe, Echuca, Wallington, Club Partners, Sapphire Coast and Narellan from acquisition to 30 April 2011 have not been
disclosed separately as they are not significant to the total Group results.
The revenue and results of the total Group for the period ended 30 April 2011, as though Sunbury, Cottlesloe, Echuca, Wallington, Club Partners,
Sapphire Coast and Narellan had been acquired on 1 May 2010, 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 2011.
94
N O T E S T O T H E F I N A N C I A L R E P O R T C O N T I N U E D
2 9 B U S I N E S S C O M B I N AT I O N S C O N T I N U E D
PRIOR PERIOD ACQUISITIONS
On 25 March 2010 the Group acquired 50.1% of the Mitre 10 business 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. The following are subsequent purchase accounting adjustments:
PURCHASE PRICE ACCOUNTING ADJUSTMENTS
purchase coNsideratioN:
Cash paid to date
Direct costs relating to the acquisition
Total purchase consideration
Less cash acquired
Net purchase consideration
Stamp duty and other adjustments
Fair value of net identifiable assets acquired (see below)
Goodwill
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
Joint venture investment
Trademark
Customer supply contracts
Deferred tax assets
Other non current assets
Fair value of forward currency contracts
Creditors and employee benefits provision
Borrowings
Non controlling interest
Fair value of net identifiable assets acquired attributable to the parent
Notes:
iNitial
$’m
55.2
3.4
58.6
(10.9)
47.7
—
(20.4)
27.3
fiNal
$’m
59.1
3.4
62.5
(14.8)
47.7
1.3
(15.7)
33.3
adjustmeNt
$’m
3.9 1
—
3.9
(3.9) 1
—
1.3 2
4.7
6.0
107.7
107.6
0.1 3
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
0.8
4.0
18.8
26.0
6.1
27.2
9.9
5.9
3.2
(0.6)
(125.3)
(12.8)
(55.1)
15.7
—
—
—
2.3 4
—
—
—
—
—
—
2.3 5
—
—
4.7
1. The acquisition of Mitre 10 provided for a “true up” of the final purchase consideration payable by Metcash for the partly paid shares issued by Mittenmet
Limited. In accordance with the formula set out in the Mitre 10 Scheme Booklet the final call was determined to be $31.505m. As these amounts were
advanced to the Mitre 10 group by Metcash Trading Limited at the date of acquisition, no additional cash flow has occurred. In addition, there has been no
change to the business combination accounting as a result of the true up and no additional goodwill arises on this transaction.
2. Stamp duty paid for land held in New South Wales amounted to $1.1 million
3. Impairment adjustment required on trade debtor at completion date
4. Adjustment to provision for impairment
5. Adjustments to acquisition accruals and provision balances including contingent liabilities
In the prior period ended 30 April 2010, the Group acquired the assets of the following entities:
date of acQuisitioN
11 May 2009
1 July 2009
25 March 2010
12 April 2010
eNtity purchased
Fresh Market Meat (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.
% acQuired
100% (1)
60% (2)
50.1%
100% (1)
M E T C A S H A N N U A L R E P O R T 2 0 1 1 95
30 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
Earnings used in calculating basic and diluted earnings per share
2011
$’m
2010
$’m
241.4
241.4
Number
227.6
227.6
Number
Weighted average number of ordinary shares used in calculating basic earnings per share
767,676,470
765,178,865
Effect of dilutive securities
Share options and performance rights
1,133,920
1,129,914
Weighted average number of ordinary shares used in calculating diluted earnings per share
768,810,390
766,308,779
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.
31 CONTINGENT LIABILITIES
The Group has granted bank guarantees to third parties in respect of property lease obligations to the value of
The Group has granted bank guarantees in respect of Workcover in Western Australia
The Group has granted stand by letter of credits
The total face value of the outstanding charges due to American Express under the charge card arrangement is
The Group has granted put options to third parties to the value of
2011
$’m
23.6
3.8
1.2
253.7
13.5
2010
$’m
19.2
3.2
—
146.0
13.3
AMERICAN EXPRESS CHARGE CARD
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 Group has granted put options relating to the sale of retail store assets to certain customers and associates. The holders of the put option have the
right to “put” these non-financial assets back to the Group 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.
AUSTRALIAN TAXATION OFFICE
Metcash has received notices of amended assessments dated 26 May 2011 and 13 June 2011 from the Australian Taxation Office (ATO) seeking
payment of a total of $48.8 million. The amended assessments are in relation to a disputed tax liability arising from the sale of various ex-Action
Supermarket retail businesses (Action Stores) during the 2007 and 2008 fiscal years that resulted in a net loss. The Action Stores were acquired by
Metcash in fiscal 2006 as a part of the acquisition of Foodland Associated Limited (FAL), and were sold as part of Metcash’s ongoing business activities
to enhance Australia’s independent retailer network. The total amount in dispute comprises primary tax of $32.9 million and then flowing from that,
interest and penalties of $15.9 million. Metcash intends to challenge the amended assessments, which assert that the net tax losses from the sale of the
Action Stores should be treated as being on capital account. These net tax losses were incurred as part of Metcash’s ordinary business activities and as
such, Metcash considers the correct treatment to be on revenue account. Metcash has received external advice in relation to the dispute. Metcash has
lodged objections to these amended assessments, and if necessary will appeal the decision to the Federal Court. Metcash is firmly of the opinion that
the treatment it has adopted is appropriate to the circumstances. Based on the strength of its position, Metcash has not recorded an expense in relation
to the amended assessments in the current year results presented in these financial statements.
FRANKLINS
Following the termination of the Franklins supply contract in January 2005, Franklins commenced proceedings against Metcash for unquantified
damages, alleging failure to pass on all rebates to which Franklins was entitled. Metcash and Franklins have agreed that no further action will be taken
regarding these proceedings, pending the outcome of the current acquisition proceedings involving the ACCC. Refer also to Note 4.
32 SUBSEQUENT EVENTS
There have been no significant events subsequent to balance date.
96
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 Metcash Limited are in
accordance with the Corporations Act 2001, including:
i. Giving a true and fair view of its financial position as at 30 April 2011 and of its performance for the year ended on that date; and
ii. Complying with Accounting Standards (including the Australian Accounting Interpretations) and Corporations Regulations 2001; and
b. The financial statements and notes also comply with international Financial Reporting Standards as disclosed in note 2(a)
c. 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 2011.
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 26 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
7 July 2011
M E T C A S H A N N U A L R E P O R T 2 0 1 1 97
AuDITOR's iNdEpENdENcE dEclArATioN
98
INDEPENDENT AudiTor'S rEporT
M E T C A S H A N N U A L R E P O R T 2 0 1 1 99
I N D E P E N D E N T AU D I T O R'S R E P O R T C O N T I N U E D
100
AsX AddiTioNAl iNforMATioN
Year ended 30 April 2011
Additional information required by the Australian Stock Exchange and not shown elsewhere in this report is as follows.
The information is current as at 7 July 2011.
(a) DISTRIBUTION OF EQUITY SECURITIES
The number of shareholders, by size of holding, in each class of share are:
size of holdiNg
1—1,000
1,001—5,000
5,001—10,000
10,001—100,000
100,001—9,999,999,999
Total
There were 535 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:
Name
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
NATIONAL NOMINEES LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
CITICORP NOMINEES PTY LIMITED
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