Metcash Trading Limited Annual Report 2001 Our Mission Statement To be the marketing and distribution leader in food and other fast moving consumer goods
Core Values Championing the Customer Our Stakeholders are Entitled to Added Value Responsibility and Personal Accountability Empowering Our people and Supporting Our Communities Values are nothing without integrity Contents The Year’s Highlights 2 Report from the Chairman and the CEO 4 Operations Summary 6 IGA Distribution 8 Australian Liquor Marketers 9 Campbells Cash & Carry 10 Functional Departments 11 The Board 12 The Executive Team 14 Financial and Statistical Highlights 16 Financial Statements 17
About Us Metcash Trading Limited is a leading marketing and distribution company operating in the food and other fast moving consumer goods categories. It has three Business Units: ■ IGA Distribution ■ Australian Liquor Marketers ■ Campbells Cash & Carry The Year’s Highlights ■ Sales growth of 6 per cent to $5.5 billion and growth in Earnings Before Interest, Tax, Amortisation and Abnormals (EBITAA) of 17 per cent to $97.6 million, reflecting benefits beginning to flow through from strategies implemented in 1998/99. ■ 1 per cent increase in Metcash share of total grocery market to 13 per cent (ACNielsen). ■ Joint Independent Divestment Alliance with Franklins to facilitate the sale of 163 stores to the independent sector. ■ Sale of John Lewis Foodservice, following poor growth and unsuccessful acquisition attempts.
2 METCASH ANNUAL REPORT 2001 ■ Buy-back of up to 40 million Converting Preference Shares announced, allowing the Company to reduce one of its highest cost sources of finance and the number of ordinary shares on issue when the Converting Preference Shares convert to ordinary shares on 8 December 2001. ■ Customer Share Incentive Scheme to reward customers for loyalty and encourage strengthening of relationship. ■ Further consolidation of the Company’s role as the Champion of the Independent Retailer. ■ Greater credibility with suppliers reflected in significantly increased supplier support.
3 METCASH ANNUAL REPORT 2001 Report From the Chairman and the Chief Executive Officer
This has been the most outstanding year Metcash has experienced since Metro Cash & Carry South Africa acquired control of the Company three years ago. The strategies we began implementing in 1998/99 have started to Left: Carlos S. dos Santos, Chairman Right: Andrew Reitzer, CEO produce strong results.
We have achieved sales growth of 6 per cent to $5.5 billion, a significant increase on the 2 per cent growth achieved in 1999/2000 and the 4 percent decline in 1998/99. Earnings before interest, tax, amortisation and abnormals (EBITAA) grew by 17 per cent to $97.6 million this year. Our three major Business Units each achieved impressive increases in sales and profit in 2000/01, with IGA Distribution recording a 16.9 per cent increase in sales and a 12 per cent increase in EBITAA; Australian Liquor Marketers a 22 per cent increase in sales and a 32 per cent increase in EBITAA and Campbells Cash & Carry a 12.4 per cent increase in sales and a 605 per cent increase in EBITAA. Following a strategic review of all Business Units, we sold our fourth Business Unit, John Lewis Foodservice this year. The Australian foodservice market is highly fragmented. John Lewis was one of three leading players, each with around 7 per cent market share. In view of this, it was difficult for John Lewis to grow by acquisition and generic growth was too slow. The price of $69 million realised a profit of $15.6 million. The sale will allow management to focus attention on our three remaining Business Units. The sale of John Lewis also yielded cash which enabled the Company to reduce borrowings and buy back a number of Converting Preference Shares. In May this year, the buy-back of up to 40 million Converting Preference Shares. was announced. To date, 22,150,798 have been purchased and cancelled. This will reduce one of the Company’s highest cost sources of finance and the number of ordinary shares on issue when the Converting Preference Shares convert to ordinary shares on 8 December 2001. This, in turn, will reduce the total cost of future preference dividend payments and increase earnings per ordinary share. Another initiative was the introduction of a Customer Share Incentive Scheme to reward customers for their loyalty and encourage them to strengthen their relationship with the Company. Almost 400 eligible customers demonstrated their confidence in the Company’s prospects by taking advantage of this opportunity. This year’s impressive results are largely attributable to us living by the Metcash values: Championing the Customer Our Stakeholders are Entitled to Added Value Responsibility and Personal Accountability Empowering Our People and Supporting Our Communities, and recognising that these values are nothing without integrity.
4 METCASH ANNUAL REPORT 2001 In practical terms, this has meant focusing on delivering high levels of customer service, keeping operational costs as low as possible, developing and implementing strong marketing programs and brand building activities, delivering maximum value to our suppliers and empowering our highly motivated people. Looking ahead, we are confident that the strategies we have in place will continue to produce strong sales and profit growth. In addition, our Joint Independent Divestment Alliance with Franklins to facilitate the sale of 163 stores to the independent sector presents an unprecedented opportunity for the independent sector to consolidate its presence in the Australian market and for Metcash to expand its distribution activities significantly without any appreciable cash outlay. We thank our people, suppliers and customers for their help and support and we look forward to working with them to create an even more successful future for us all.
Carlos S. dos Santos Andrew Reitzer Chairman CEO 18 July 2001
Value added statement Creation of Wealth $’000 Revenue totalled 5,906,133 Cost of expenses and merchandise (5,556,678) Value Added 349,455
Distribution of Wealth To employees – salaries and benefits 220,964 To government – taxation 39,226 To lenders – interest on borrowings 15,058 To shareholders – dividends 20,935 Reinvested – depreciation, amortisation and retained profits 53,272 349,455
5 METCASH ANNUAL REPORT 2001 Operations summary
IGA Distribution Major Activities ■ ‘Champion of the Independent Retailer’ ■ Eight world-class Distribution Centres, benchmarked to international efficiency standards, carry around 14,000 items to meet the dry, chilled and frozen grocery requirements of approximately 4,500 independent retail grocery stores in the eastern States and South Australia. ■ A comprehensive range of services assists retailers, including 24 hour retail system support, in-store training, specialist advice on store refurbishment and building new sites and a non-trade procurement service.
Significant events ■ An increase in the number of IGA stores to 1036 ■ Sales growth of 16.9 per cent to $2.43 billion ■ 52 new stores (totalling 22,968 m2), 10 store extensions (totalling 1,151 m2) and 60 store refurbishments, with these 122 projects totalling an additional 24, 119 m2 of floor space. ■ First combined National IGA Expo and Conference Future directions ■ The sale of 163 Franklins stores to the independent sector will significantly expand the independent presence in the grocery market and deliver independent retailers over $2.38 billion more in annual retail sales. ■ Distribution to these stores will add significantly to the level of warehouse withdrawals and profitability of IGA Distribution Centres.
Australian Liquor Marketers Major Activities ■ ALM is the leading broad range liquor wholesaler in Australia. ■ 16 world class, low cost Distribution Centres across Australia and New Zealand, benchmarked against international players, carry more than 8,000 products to meet the wine, spirits and beer requirements of over 13,000 licensed premises. ■ ALM provides a viable alternative to direct supply by offering liquor suppliers a low cost route to market.
Significant events ■ Sales growth of 22 per cent, attributable to successful strategies to attract customers away from direct supply and an increase of over 50 per cent in the sale of Ready to Drink (RTD) beverages. ■ Rationalisation of warehouse locations and operations in Adelaide, Melbourne and Brisbane and relocation of warehouse operations in Auckland.
6 METCASH ANNUAL REPORT 2001 Campbells Cash & Carry Major Activities ■ 40 wholesale cash and carry warehouses across New South Wales, Victoria, Queensland and South Australia carry 12,000 liquor, food service, grocery, dairy, frozen, confectionery and tobacco items to meet the requirements of more than 70,000 business customers. ■ A broad product range has enabled Campbells to evolve into an effective wholesale distribution network catering for a combination of ‘walk in’ trade and full delivery distribution facilities.
Significant events ■ Sales growth of 12.4 per cent ■ C Store Distribution has established itself as a specialist single pick operation, well positioned to take advantage of the growing corporate, franchised and independent convenience store market. ■ C Store Distribution assists customer groups in driving compliance with off-invoice promotional pricing, range control and electronic ordering facilities. ■ Campbells’ wide range and low warehouse costs have enabled it to provide an excellent source of supply for emerging e-commerce customers who choose to outsource their warehousing and logistics.
Future Directions ■ Significantly increased share of the confectionery category of the route trade market over the next 12 months. ■ C Store Distribution will expand from its current metropolitan base of four sites to an additional 20 regional sites, utilising existing Campbells facilities. ■ C Store Distribution, with Campbells, will provide a standard pricing and promotional offer to multi-site petroleum and other convenience store customers on a wide range of products, thereby reducing the large number of vendors servicing these sites. ■ Campbells will open three new outlets in the coming year.
Australian Liquor Marketers ■ Significant increase in supplier support, reflecting greater confidence in ALM’s performance and ability to meet the standards required by suppliers in dealing with the independent market. ■ Promotion of the ‘ALM Advantage’, a non-trade procurement offer to retailers offering them significant savings on petrol, communications services and EFTPOS services.
Future Directions ■ Significant sales growth is expected to continue, as ALM attracts more suppliers away from direct supply and the dramatic increase in RTD sales continues. ■ The on-line ordering offer will be expanded to meet increased customer demand. ■ Review currently underway into the viability of opening a Distribution Centre in Wellington. ■ A stronger focus on ALM’s on-premise business will complement its traditional retail focus business.
7 METCASH ANNUAL REPORT 2001 IGA Distribution
IGA Distribution is now supplying general merchandise, dry, chilled and frozen grocery consumer goods to approximately 4500 independent retail grocery stores from its eight Distribution Centres. The strategy to develop and focus on one core brand, IGA, continues to prove its success. 250 South Australian stores joined the IGA group in August 2000, bringing to 1036 the number of IGA stores operating in South Australia and across the Eastern Seaboard. The strength of the IGA brand is evidenced by IGA Distribution’s sales growth of 16.9 per cent to $2.43 billion over the last 12 months. This result contributed to an increase from 12 to 13 per cent of Metcash’s share of the total Australian retail grocery market, as measured by ACNielsen. The pending sale of 163 Franklins stores to the independent sector will further boost market share. This represents an unprecedented opportunity for the independent sector to consolidate its presence in the Australian market and for IGA Distribution to expand its distribution activities significantly. Championing the independent retailer is at the heart of IGA Distribution’s philosophy. It is achieved through the marketing and positioning of the IGA brand. IGA retail sales and store size continue to increase, a direct result of confidence among consumers and retail developers in both the brand and the capability of independent operators. The first combined National IGA Conference and Expo was held in 2000. The event was an overwhelming success and a further example of IGA Distribution championing the independent retailer. From an operational perspective, IGA Distribution continues to make progress in driving efficiency gains in all its operations. IGA Distribution operated at an average service level of 96 per cent throughout the year and this, combined with an average engineered standards achievement of 100 per cent, enabled the business to markedly improve operating margins. During the year, the distribution and warehousing operations of IGA and ALM in Victoria and South Australia were consolidated, providing significant savings in overheads to the Group. The sale of the Franklins stores provides an unparalleled opportunity to the Company to grow market share and further develop the IGA brand. This is one example of the many opportunities and challenges which lie ahead.
8 METCASH ANNUAL REPORT 2001 Australian Liquor Marketers
Australian Liquor Marketers (ALM) has consolidated its position as Australia’s leading liquor wholesaler in the last 12 months. Its 16 world-class, low cost Distribution Centres across Australia and New Zealand now carry in excess of 8,000 products to meet the wine, spirits and beer requirements of more than 13,000 licensed premises. ALM has continued its push to provide a viable alternative to direct supply by offering a low cost route to market for the liquor suppliers of Australia and New Zealand. This method of servicing the market underpinned a 22 per cent increase in sales over the previous year. The sales increase was also attributable to major growth in the Ready to Drink (RTD) beverage segment which saw sales more than double during the year. ALM’s efforts to ensure it offers customers the best possible service levels include continually refining its warehouse operations and practices. Over the last year, ALM has rationalised its warehouse locations and operations in Adelaide and Melbourne – and more recently in Brisbane – to better utilise the efficiencies offered by integration with IGA Distribution Centres. A review of ALM’s warehousing needs in New Zealand led to the relocation of the warehousing operations in Auckland. A separate review is being undertaken into the viability of opening a Distribution Centre in Wel l i n g t o n . ALM’s on-line ordering offer is attracting increasing customer interest and will be expanded over the coming year. ALM will intensify its efforts to attract customers away from direct supply over the next 12 months. In addition, ALM’s Harbottle Division will launch a major initiative to generate significantly more on-premise sales to restaurants, nightclubs and international hotels. This stronger emphasis on on-premise business will complement ALM’s traditional retail focused business. In addition, ALM will continue to benchmark its customer service against that of competitors to ensure it not only meets customer expectations but exceeds them.
9 METCASH ANNUAL REPORT 2001 Campbells Cash & Carry
The last 12 months have seen Campbells Cash & Carry return a strong profit and sales growth to the Metcash group. Campbells has a significant heritage dating back to 1933. It employs more than 1000 staff and much of its success is attributable to the level of service they provide. Campbells operates from 40 warehouses across New South Wales, Victoria, Queensland and South Australia. It has an active customer base of more than 70,000 business customers, ranging from convenience stores, small retailers and pubs to larger institutions and government contracts. With a broad range of products across the liquor, food service, grocery, dairy, frozen, confectionery and tobacco categories, Campbells has evolved into an effective one stop wholesale distribution network catering for a combination of ‘walk in’ trade and full delivery distribution facilities. C Store Distribution has established itself as a specialist single pick operation, well positioned to take advantage of the growing corporate, multi-site and independent convenience store market. It will expand from an existing metropolitan base of four sites to an additional 20 regional sites, utilising existing Campbells facilities strategically located across New South Wales, Victoria, Queensland and South Australia. Campbells has made significant gains in the route trade market and substantial growth will be realised in the confectionery category of this market in the next 12 months. Campbells wide range and low warehouse operational costs enable it to provide an excellent source of supply for emerging e- commerce customers who choose to outsource their warehousing and logistics. Campbells will open a further three outlets in the coming year.
10 METCASH ANNUAL REPORT 2001 Functional Departments
People The sale of the company-owned retail stores required A major focus on aligning our people to our business goals substantial contribution from the Legal and Property and building their competencies to be able to achieve Departments. Around 120 stores were sold or closed with company performance targets has paid off over the last year. each disposal requiring the negotiation of agreements with Staff morale and commitment are growing strongly and we landlords and purchasers. Negotiations on the transfer of now have well established policies and procedures that are Franklins stores to our customers will require their intimate improving people management practices throughout Metcash. involvement. A significant shift away from traditional adversarial The Property Department has also been involved in the industrial relations in our workplaces has enabled us to development of new or enlarged distribution facilities at achieve substantial cultural and operational changes that Loganlea (QLD) and Silverwater (NSW) over the last 12 have contributed to this year’s results. months. In addition, it planned and managed the construction of a new corporate office building on the Information Technology Silverwater site. The expansion of the Laverton warehouse Over the past year, the initial implementation of the site is planned for completion during the current financial PeopleSoft modules has occurred across our Financial y e a r. Shared Services environment and in one of the three Business Units. The rollout will continue across the other Logistics Business Units in the coming year. The past year has seen the completion of the integration The development of a data warehouse to provide process to merge ALM and IGA distribution facilities in common reporting and statistical analysis, as well as e-trade Victoria, South Australia and, more recently, in Queensland. initiatives, is well under way. This will lead to significant The extension to the Company’s freezer/chiller facility in business improvements over the next 12 months. South Australia has been finished. This completes the roll- out of the Dallas warehouse management system to all IGA Finance facilities. The Finance Department is responsible for providing the The roll-out also includes the use of engineered Company with financial, legal, security, property management standards. The Company intends to introduce an incentive & administration, risk management and administration services. scheme for work carried out above standard. This will Significant effort was devoted to preparing the Company reduce our variable cost to serve while also rewarding our and its customers for the introduction of the Goods & employees. Services Tax regime and provided the base for a smooth implementation. Merchandise and Marketing The introduction of PeopleSoft software to the Finance The Merchandise and Marketing Department’s role is Department has provided a modern and uniform base for threefold: to provide retailers with the right product at the the Company’s accounting and operating systems. To date, right price so they can compete effectively in the the General Ledger and Expense Creditors systems have marketplace, to provide promotional and advertising been replaced and a new budget module added. The programs which deliver targeted marketing and to build balance of the accounting systems will be replaced during sound relationships with our suppliers. the coming financial year. The independent sector made significant progress in the important area of Fresh Food over the last 12 months. The Company’s Corporate Brands – Black & Gold, IGA and Chef’s Essentials – were strengthened over the last year.
11 METCASH ANNUAL REPORT 2001 The Board
MR CARLOS S. MR A.E. (TED) HARRIS MR ANDREW REITZER MR MIKE R. JABLONSKI MR EDWIN M. DOS SANTOS AC FID, FAIM, FAICD BComm and MBL Merchandise Director JANKELOWITZ CA (SA) Non-Executive Director CEO Metcash Group 48 years of age BComm CA(SA) Non-Executive Chairman Chairman of the of Companies Mr Mike Jablonski has Finance Director Member of the Remuneration 48 years of age 30 years experience in 58 years of age Remuneration Committee Mr Andrew Reitzer had the Food Industry. Mr Edwin Jankelowitz Committee 74 years of age 20 years experience Before joining Metcash, was previously Group 57 years of age Mr Ted Harris served with Metro before he was Director of Managing Director and Mr Carlos dos Santos is as Managing Director joining Metcash. Distribution and Retail Chairman of CTP/Caxton the Chief Executive of and Chief Executive His previous positions Development for Metro. Group of Companies and Metro Cash & Carry Officer of the Ampol included Group His previous positions Finance Director of Limited (‘Metro’), a Group from 1977 to Operations Director, included Merchandise Adcock Ingram Limited. South African public 1987 and Chairman heading Metro’s and Marketing Director company and the of Australian Airlines operations in Russia and of Score Food Holdings C o m p a n y ’s Chief Entity. between 1987 and Israel, Marketing Director, Ltd and Merchandise 1992. Currently Mr IT Director and heading Executive - Foods - of Harris holds a variety various operating OK Bazaars. of positions including divisions of Metro. From 1992 until 1996, Chairman of BAE Mr Jablonski was Deputy Systems Australia, Group Merchandise Arena Management, Director for Metro. Gazal Corporation and Thakral Holdings and Deputy Chairman of APN News and Media. He is a member of the Regional Board of St Vincent’s Hospital Sydney, a Director of the Capitol Theatre, and a Life Member of the Australian Sports Commission. Mr Harris is a former Commissioner of the ABC and was a member of the Executive Board of the Sydney Olympics 2000 Bid Company.
12 METCASH ANNUAL REPORT 2001 MR BERNARD J. HALE MR V. DUDLEY RUBIN MR RICHARD A. MR PETER L. BARNES BTh (SA) CA (SA), Hdip BDP, MBA LONGES MBA (Melbourne), Non-Executive Director Non-Executive Director BA (Sydney), LLB B Commerce (Hons) 45 years of age Chairman of the Audit (Sydney), MBA (NSW) (Melbourne) Mr Bernard Hale is a Committee Solicitor (non practising) Non-Executive Director Director of Metro. 57 years of age Non-Executive Director Member of the Audit He has 26 years IT Mr Dudley Rubin is Member of the Audit Committee industry experience. Group Finance Director Committee 58 years of age Mr Hale has been with of Metro. 56 years of age Mr Peter Barnes is Metro for 19 years, Mr Richard Longes is Chairman of the Co- holding positions as Chairman of General operative Research Operations Director IT, Property Trust, Deputy Centre for Vi t i c u l t u r e Group IT Director, Group Chairman of Lend Lease and a Director of Operations Director Corporation Limited and Samuel Smith & Sons (Domestic) and a Director of various Pty Limited – Ya l u m b a Corporate Group other public companies. Wines. In a 29 year IT Director. Mr Hale Mr Longes is a Principal career with Philip Morris succeeds Sir Leo of Wentworth Associates International Inc, he H i e l s c h e r, who retired Pty Limited and was held several senior from the Metcash Board formerly a partner in management positions on 4 September 2000. Freehill Hollingdale & in Australia and Page solicitors. overseas including Managing Director, Lindeman Holdings Ltd. Mr Barnes’ final assignment from 1993 until 1998 was in Hong Kong as President, Asia Region, Philip Morris International.
13 METCASH ANNUAL REPORT 2001 The Executive Team
ANDREW REITZER MIKE JABLONSKI LOU JARDIN BComm and MBL Merchandise Director CEO IGA Distribution CEO Metcash Group of Companies 48 years of age 45 years of age 48 years of age Mike has 30 years experience in the Lou has extensive industry experience Andrew had 20 years experience with Food Industry. Before joining Metcash, including owning and operating Metro before joining Metcash. he was Director of Distribution and independent supermarkets, holding His previous positions included Group Retail Development for Metro. senior positions within a chain store Operations Director, heading Metro’s His previous positions included environment as well as warehouse and operations in Russia and Israel, Marketing Merchandise and Marketing Director distribution operations. Lou held a D i r e c t o r, IT Director and heading of Score Food Holdings Ltd and senior position with Coles for 11 years various operating divisions of Metro. Merchandise Executive - Foods - of OK before joining Metcash in 1997 as the Bazaars. From 1992-1996, National Manager of Company-owned EDWIN JANKELOWITZ Mike was Deputy Group Merchandise stores. In 1998, he moved to Queensland BComm CA (SA) Director for Metro. as the State General Manager until his Finance Director current appointment to the role of CEO 58 years of age of IGA Distribution. Edwin was previously Group Managing Director and Chairman of CTP/Caxton Group of Companies and Finance Director of Adcock Ingram Limited.
14 METCASH ANNUAL REPORT 2001 Left to right: Mike Wesslink, Doug Sweeney, Mike Jablonski, Andrew Reitzer, Lou Jardin, Peter Dubbelman, Edwin Jankelowitz, Ken Bean, Peter Ward.
PETER DUBBELMAN KEN BEAN This experience has been CEO Campbells Cash & Carry M B A complemented by extensive education 40 years of age Chief Executive, Group Logistics at graduate management level in Peter was appointed CEO of Campbells and Corporate Development Australia and the United States. Cash & Carry in June 1998. He has more 48 years of age than 20 years experience in fast moving Ken has more than 30 years ex p e r i e n c e DOUG SWEENEY consumer goods distribution at wholesale in the retail wholesale industry. Chief Information Officer level, primarily in multi-site general P r e v i o u s l y, he was General Manager of 42 years of age management and operations (Makro and Coles Myer Logistics Pty Ltd and was also Doug joined the Company as Chief Metro Cash & Carry in South Africa). responsible for Coles Myer Asia’s buying Information Officer in May 1999 offices. In addition, Ken has held after 18 months contracting to the MIKE WESSLINK senior roles in corporate development IT Department, most recently as B.Sc. Chem.Eng., MBA as well as finance and administration. Application Services Manager. He has CEO Australian Liquor Marketers more than 23 years experience in 53 years of age PETER WARD information technology, encompassing Mike joined ALM in April 1998. He has Associate Fellow AHRI, AIMM both infrastructure and applications worked in the liquor industry for more Chief Human Resources Officer areas. In the last 8 years, he has than 27 years, having previously been 44 years of age specialised in large system Chief Executive at Tooheys Limited and Peter has more than 20 years implementations for the Retail and The Swan Brewery Company Limited. experience in senior human resources Distribution Industries. More recently, he has worked as and change management roles, both Managing Director of Amcor Containers in large multinational and Australian Packing, Asia, establishing and managing corporations. He has had significant packaging operations throughout Asia, involvement in business improvement particularly in China and Singapore. initiatives.
15 METCASH ANNUAL REPORT 2001 Financial and Statistical Highlights – Five Year Review
Financial and Statistical Highlights - Five Year Review
12 Months 12 Months 10 Months 12 Months 12 Months 2001 2000 1999 1998 1997 $’000 $’000 $’000 $’000 $’000 Income Statement Net Sales 5,458,198 5,147,653 3,372,341 4,566,274 4,886,553 Earnings before abnormals, amortisation, interest and taxation 97,583 74,607 48,764 19,037 79,419 Earnings before abnormals, interest and taxation 78,612 55,344 37,095 7,405 63,139 Interest 15,058 14,442 8,966 24,725 25,411 Operating profit before tax and abnormals 63,554 40,902 28,129 (17,320) 37,728
Balance Sheet Shareholders Equity 354,004 341,946 356,972 408,125 258,281 Net Tangible Assets per share (cents) (12) (21) (8) - (1) Interest bearing debt to equity (%) 66 76 46 38 166
Share Statistics Fully paid ordinary shares 485,086,863 483,729,763 483,729,763 483,729,763 445,780,785 Weighted average ordinary shares 484,302,348 483,729,763 483,729,763 448,585,093 445,780,785 Converting preference shares 151,761,855 151,761,855 151,761,855 151,761,855 - Basic Earnings per ordinary share (cents) 4 (3) - (3) (54) Dividends per ordinary share (cents) 1.5 0.5 - - 5 Dividends per CPS (cents) 9 9 4 4 -
Other Statistics Number of Employees 5,220 8,460 10,463 12,109 12,172
16 METCASH ANNUAL REPORT 2001 Financial Statements Table of Contents
Corporate Governance 18
Directors’ Report 20
Statements of Profit and Loss 26
Balance Sheet 27
Statements of Cash Flow 28
Note 1. Statement of Significant Accounting Policies 29 Note 2. Operating Profit (Loss) 33 Note 3. Abnormal Items 34 Note 4. Taxation 35 Note 5. Earnings Per Share 35 Note 6. Dividends 36 Note 7. Receivables 36 Note 8. Inventories 37 Note 9. Other Assets 38 Note 10. Investments 38 Note 11. Property, Plant and Equipment 39 Note 12. Intangibles 40 Note 13. Accounts Payable 40 Note 14. Borrowings 40 Note 15. Provisions 41 Note 16. Share Capital 42 Note 17. Reserves 44 Note 18. Cash Flows 44 Note 19. Segment Information 48 Note 20. Superannuation Plans and Employee Ownership Schemes 48 Note 21. Capital Commitments 49 Note 22. Investment in Associates 50 Note 23. Controlled Entities 51 Note 24. Directors’ and Executives Remuneration 54 Note 25. Auditors Remuneration 56 Note 26. Contingent Liabilities 56 Note 27. Related parties 56 Note 28. Subsequent Events 58 Note 29. Additional Financial Instrument Disclosures 59
Directors’ Declaration 60
Audit Report 61
Distributions of Shares – Ordinary Shares 62
Distributions of Shares – Converting Preference Shares 63
Company Directory 64
17 METCASH ANNUAL REPORT 2001 Corporate Governance
The Directors support and adhere to the principles of corporate governance. In supporting those principles, the Directors acknowledge the need for the highest standards of behaviour and accountability.
The Board The Board consists of a majority of Non-Executive Directors.
The principal functions of the Board include:
• reviewing goals, strategy and annual business plans; • monitoring operational and financial performance and risk of each of the Company’s activities; • reviewing major capital expenditure, acquisitions, divestments and funding; • reviewing performance, remuneration and succession of senior management; • monitoring compliance with regulatory requirements, including occupational health and safety laws, product safety and • the protection of the environment; and • monitoring the Company’s relationships with its stakeholders and compliance with the Company’s Code of Conduct.
Nominations to the Board The Board has adopted the following principles:
• The Chairman of the Board should be a Non-Executive Director; • The Board should comprise a majority of Non-Executive Directors; • The Board should comprise persons with a broad range of skills and experience appropriate to the needs of the Company; and • The Board should review its performance on a regular basis.
The composition of the Board is monitored (both with respect to size and membership) to ensure that the Board has the appropriate mix of skills and experience.
When a vacancy exists, or when it is considered that the Board would benefit from the services of a new Director with particular skills, the Board selects a panel of candidates with appropriate expertise and experience. This may be supplemented with advice from external consultants if necessary. The Board then appoints the most suitable candidate who must stand for election at the next general meeting of shareholders.
Audit Risk & Compliance Committee The membership of the Audit Risk & Compliance Committee consists of Non-Executive Directors.
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 risk, compliance with laws and regulations and appropriate ethical standards for the management of Metcash Trading. 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 financial statements.
The principal terms of reference of the Audit Risk & Compliance Committee are:
• The effective management of financial risk through ensuring that systems and management processes are in place to identify and manage operational, financial and compliance risks. Specific areas of review include: – Financial risk and exposure. – Occupational Health and Safety – Environmental issues – HACCP – Integrity of Information Technology systems
18 METCASH ANNUAL REPORT 2001 Corporate Governance
• The provision of reliable management and financial reporting. This is done by reviewing and assessing the: – Quality and timing of management reporting to the Board to enable internal and external reporting of the company’s risks, operations and financial condition. – Accounting policies and practices against generally accepted accounting principles and the requirements of the Corporations Law, Australian Accounting Standards and Australian Stock Exchange requirements. – Half yearly and annual financial statements.
• Compliance with laws and regulation by monitoring developments and changes in the various rules, laws and regulations relating to the company’s business operations, the responsibilities of directors and reviewing the extent to which the Board and the company are meeting their obligations and to ensure that all requirements are met.
• The maintenance of an effective and efficient audit function. This is achieved by: – Recommending to the Board the appointment of external and internal auditors. – Reviewing the effectiveness of the external and internal audit functions. – Ensuring audit scopes are adequate and cover areas of anticipated risk. – Review audit findings and management response. – Ensure auditors have the necessary access to company information and staff to fulfil their obligations.
Risk Management and Code of Ethics/Conduct The Board has in place a number of policies and procedures to monitor and manage operational and financial risks of the Company. These policies address, among other things, equal employment opportunity, discrimination and harassment, occupational health and safety, product safety, environment, foreign exchange and interest rate exposure (including derivatives), insider trading and trade practices.
The Company also operates a continuous disclosure regime throughout the Group.
The Board reviews the effectiveness of risk management policies and procedures by:
• undertaking, annually, a comprehensive strategic and budget review of the Group’s activities; • reviewing monthly financial performance against the 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; and • reviewing annually the effectiveness and adequacy of the Group’s insurance program.
Remuneration Committee The membership of the Remuneration Committee consists of Non-Executive Directors. The function of the Remuneration Committee is to review on an on-going basis the remuneration and policies applicable to senior management and Non-Executive Directors.
Executive Directors do not participate in the Committee’s review of their own remuneration. This review role also includes responsibility for share option schemes, incentive performance packages, superannuation entitlements, retirement and termination entitlements and fringe benefits policies.
Remuneration levels are competitively set to attract qualified and experienced Directors and senior management.
Reviews are undertaken from time to time by external remuneration specialists appointed by the Remuneration Committee.
Other Committees The Board of Directors may, from time to time, appoint members to special committees as considered appropriate. Independent Professional Advice The Board has a policy of enabling Directors to seek independent professional advice at the Company’s expense. The Board will review in advance the estimated costs for reasonableness, but will not impede the seeking of advice.
19 METCASH ANNUAL REPORT 2001 Directors’ Report
Directors’ Report The Board of Directors of Metcash Trading Limited, the Company and chief entity, submit the following report made out in accordance with a resolution of directors in respect of the year ended 30 April 2001.
Directors The following Directors held office during the year and until the date of this report: Carlos S dos Santos (Chairman) A E (Ted) Harris, AC Andrew Reitzer Michael R Jablonski Edwin M Jankelowitz Sir Leo Hielscher (retired 4 September 2000) V Dudley Rubin Peter L Barnes Richard A Longes Bernard J Hale (appointed 8 November 2000)
Details of Directors are shown on page 12 - 13 of this Annual Report.
Principal Activities of the Economic Entity The continuing principal activities of the economic entity during the financial period, were the wholesale distribution of groceries, liquor and associated products.
Results and Dividends $’000 Consolidated economic entity profit after income tax for the financial year 32,705 Total dividends for the year ended 30 April 2001: Interim dividend for Converting Preference Shares - paid February 2001 6,867 Final dividend for Converting Preference Shares - paid July 2000 6,792 Proposed Final Dividend for Ordinary Shares - provided 2001 7,276 20,935 Dividends referred to above are fully franked.
Earnings per share Cents Basic earnings per share 3.9
20 METCASH ANNUAL REPORT 2001 Directors’ Report
Review of Operations A review of the operations during the year, and the results of those operations, appears in the foregoing Chairman’s and CEO’s report.
Significant Changes in the State of Affairs On 4 September 2000, pursuant to a resolution of shareholders, the Company changed its name from Davids Limited to Metcash Trading Limited.
In the opinion of the Directors, there were no other significant changes in the state of affairs of the economic entity during the financial year under review, not otherwise disclosed in the Chairman’s and CEO’s report.
Events Subsequent to Balance Date The Directors are not aware of any matter or circumstance that has arisen since the end of the financial period which has not been covered elsewhere in the Annual Report.
Likely Developments and Expected Results Information, other than that already disclosed in this Annual Report, as to likely developments in the operations of the economic entity and the expected results of those operations in subsequent financial years would unreasonably prejudice the interests of the economic entity and therefore have not been included in this report.
Share Options Details of share options are set out in Note 16 and Note 20 of the financial statements, and form part of this report.
Directors’ and Other Officers’ Emoluments The Remuneration Committee of the Board of Directors is responsible for determining and reviewing compensation arrangements for the Directors and senior management of the Company. The Remuneration Committee assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant market conditions with the overall objective of deriving maximum shareholder benefit from the retention of a high quality Board and executive team. Such officers are given the opportunity to receive their base emolument in a variety of forms including cash, fringe benefits such as motor vehicles and allowable salary sacrifice arrangements. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Company.
To assist in achieving these objectives, the Remuneration Committee also links an element of Executive Directors’ and senior management’s emoluments to the Company’s financial and operational performance. All senior executives have the opportunity to qualify for participation in the Management Bonus Scheme which provides for an annual cash bonus to be paid where specified financial performance criteria are achieved. In addition, an option plan has been implemented providing executives and all employees (under the Employee Option Plan), with the opportunity to participate in the future success of the Company. Details regarding the issue of share options under this plan are provided in Note 16 and Note 20 to the financial statements.
Details of the nature and amount of each element of the emolument of each Director and each of the five executive officers of the Company and the economic entity receiving the highest emolument for the financial year are as follows:
21 METCASH ANNUAL REPORT 2001 Directors’ Report
Emoluments of Directors of Metcash Trading Limited
Emoluments for the year Longer Term Emoluments Salary Bonus Other Option Grants Superannuation $ $ $ $ $ C.S. dos Santos - - - - - A.E. Harris 79,500 - - - - A. Reitzer 689,985 124,474 35,159 - 8,191 M.R. Jablonski 433,476 75,000 - - 8,191 E.M. Jankelowitz 433,476 75,000 - - 8,191 B.J. Hale - - - - - Sir Leo Hielscher 23,673 - 186,233 - - V.D. Rubin - - - - - R.A. Longes 50,000 - - - 3,750 P.L. Barnes 50,000 - - - 3,750
Emoluments of Five Most Highly Paid Executive Officers of the Company and the Consolidated Entity Emoluments for the year Longer Term Emoluments Salary Bonus Other Option Grants Superannuation $ $ $ $ $
M. Wesslink 291,645 75,759 18,355 158,900 47,112 K. Bean 324,068 60,667 11,500 158,900 30,000 L. Jardin 289,525 44,200 26,000 136,200 14,475 M. McKenzie 288,523 - 15,333 158,900 30,356 J. Randall 283,783 60,000 - 22,700 75,222 The elements of emoluments have been determined on the basis of the cost to the Company and the economic entity.
Executives are those directly accountable and responsible for the operational management and strategic direction of the Company and the economic entity.
The category “Other” includes the value of non-cash benefits, such as motor vehicles, housing allowances and payments for termination of contract.
Options granted relate to the current year and have been valued using an option pricing model which takes account of factors such as the option exercise price, the current level and volatility of the underlying share price and the time to maturity of the option.
22 METCASH ANNUAL REPORT 2001 Directors’ Report
Options Granted to Directors and any of the Five Most Highly Paid Officers Details of options granted over unissued shares in Metcash Trading Limited during or since the end of the year to any director and any of the five most highly remunerated officers of the Company as part of their remuneration are as follows :
Number of Options over one Ordinary Share C.S. dos Santos - A.E. Harris - A. Reitzer - M.R. Jablonski - E.M. Jankelowitz - B.J. Hale - Sir Leo Hielscher - V.D. Rubin - R.A. Longes - P.L. Barnes - M. Wesslink 700,000 K. Bean 700,000 L. Jardin 600,000 M. McKenzie 700,000 J. Randall 100,000
Rounding of Amounts The amounts contained in this report and in the financial statements have been rounded off under the option available to the company under ASIC Class Order 98/100. The Company is an entity to which the Class Order applies.
Directors’ Interests in Shareholdings At the date of this report, the interests of the Directors and Director related entities, in the shares of the parent entity and related entities were:
Ordinary Converting Options over Shares in Shares Preference Ordinary Metro Cash Shares Shares & Carry Ltd C.S. dos Santos - - - 16,781,292 A.E. Harris, AC 140,000 200,000 - - A. Reitzer 50,000 77,500 2,000,000 1,337,646 M.R. Jablonski - - 1,000,000 - E.M. Jankelowitz 10,000 10,000 1,000,000 - B.J. Hale - - - 1,266,142 V.D. Rubin - - - 2,474,538 R.A. Longes 100,000 - - - P.L. Barnes 50,000 75,000 - -
23 METCASH ANNUAL REPORT 2001 Directors’ Report
Directors’ Meetings
Audit Risk & Remuneration Board of Directors Compliance Committee Committee Maximum Maximum Maximum Possible Possible Possible Attended Attended Attended Attended Attended Attended C.S. dos Santos 4 4 3 3 A.E. Harris, AC 4 4 3 3 A. Reitzer 4 4 M. R. Jablonski 4 4 E. M. Jankelowitz 4 4 B. J. Hale 2 2 Sir Leo Hielscher 1 2 1 1 V. D. Rubin 4 4 2 2 P.L. Barnes 4 4 2 2 R.A. Longes 4 4 1 2
Environmental Regulation and Performance Metcash Trading Limited has successfully undertaken a number of major construction projects at its distribution centres within the last year. One of these sites has a contamination issue and the remediation works to encapsulate this area, in line with Environmental Protection Authority (EPA) guidelines, have been programmed for completion by the end of August 2001.
A second issue related to environmental regulations has been the decommissioning of service stations that were associated with the company owned retail stores. Six sites were decommissioned after remediation work undertaken by specialist contractors. All works were undertaken within the strict guidelines of the EPA and to the satisfaction of the landlords.
There remain only two service stations leased by the Company and these sites will be monitored for any major fuel spillage or other forms of contamination whilst under our control.
Metcash Trading Limited continues to comply with all ANZFA and State Food Safety legislation and regulations to ensure optimum food quality and safety for all customers and consumers through it's 70 corporately controlled food premises.
Metcash Trading Limited has committed itself to completing Independent Third Party certification audits of all food premises as per the ANZFA Standard 3.2.1 (Food Safety Programs) by end of November 2001 well in advance of state and national time-lines. This has included the establishment, implementation and continuous improvement of a food safety training and management system called HACCP (Hazard Analysis and Critical Control Points) based Food Safety Programs.
All staff directly handling and / or processing foods have been progressively educated to enable them to understand, participate in and maintain the HACCP system effectively. This audited system will ensure the health, safety and welfare of customers, consumers and staff.
Occupational Health and Safety Metcash has introduced an Occupational Health and Safety program across all Business Units. The program’s vision is to ‘Eliminate workplace injuries by integrating Risk and Recovery processes into business operations’.
The framework implemented allows each area of the business to focus on specific Occupational Health and Safety business issues while achieving Group goals and objectives.
The following Corporate Goals have been set:
24 METCASH ANNUAL REPORT 2001 Directors’ Report
Reduce all KPIs by 10 per cent
1. Reported Accidents 1999/2000 Actual 368 2000/01 Target 332 2000/01 Actual 243 26 per cent reduction
2. Number of Compensation Claims 1999/2000 Actual 420 2000/01 Target 378 2000/01 Actual 387 7.9 per cent reduction
The reported accidents reduction of 26 per cent is directly related to education and prevention activities. All sites have an active Occupational Health and Safety committee.
Although the 7.9 per cent reduction in the number of Compensation Claims did not meet target, it does show that the focus is starting to pay off.
A more aggressive goal of 15 per cent has been set for the coming year.
Directors’ and Officers’ Indemnity and Insurance (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 FJ Conroy, CP Curran, JR Fleming, TS Haggai, DWJ Bourke, RS Allan and JJ David 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 Trading 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 liability 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.
For and on behalf of the Board
Andrew Reitzer Edwin Jankelowitz Director Director Sydney, 18 July 2001
25 METCASH ANNUAL REPORT 2001 Statements of Profit and Loss Year Ended 30 April 2001
Metcash Group Metcash Trading Limited 2001 2000 2001 2000 Note $’000 $’000 $’000 $’000 Operating Revenue 2 5,906,133 5,528,811 23,417 27,501 Operating Profit before Abnormal Items and Income Tax 63,554 40,902 22,083 18,963 Abnormal Items before Income Tax 3 (6,511) (16,191) - - Operating Profit before Income Tax 57,043 24,711 22,083 18,963 Income Tax attributable to Operating Profit 4 (24,338) (23,658) (471) 472 Operating Profit after Income Tax 32,705 1,053 21,612 19,435 (Accumulated Losses) at the beginning of the period (232,673) (217,648) (55,371) (58,728) Available for Appropriation (199,968) (216,595) (33,759) (39,293) Dividends Provided for or Paid 6 (20,935) (16,078) (20,935) (16,078) (Accumulated Losses) at the end of the period (220,903) (232,673) (54,694) (55,371) Basic Earnings Per Share - profit (loss) (Cents per share): 5 3.93 (2.61) Dividends per ordinary share (cents) 1.5 0.5
26 METCASH ANNUAL REPORT 2001 Balance Sheet As at 30 April 2001
Metcash Group Metcash Trading Limited 2001 2000 2001 2000 Note $’000 $’000 $’000 $’000 Current Assets Cash 17,567 54,428 6,183 33,141 Receivables 7 557,542 468,272 311,951 331,191 Inventories 8 292,501 308,138 - - Other 9 9,657 9,250 1,217 1,490 Total Current Assets 877,267 840,088 319,351 365,822
Non-Current Assets Receivables 7 11,169 611 - - Investments 10 1,021 1,849 476,266 477,017 Property, Plant and Equipment 11 94,511 138,584 15,254 15,507 Intangibles 12 265,040 288,523 - - Other 9 62,722 82,848 39 - Total Non-Current Assets 434,463 512,415 491,559 492,524 Total Assets 1,311,730 1,352,503 810,910 858,346
Current Liabilities Accounts Payable 13 656,123 678,437 118,243 156,504 Borrowings 14 6,036 12,068 - - Provisions 15 51,247 48,830 7,276 2,419 Total Current Liabilities 713,406 739,335 125,519 158,923
Non-Current Liabilities Accounts Payable 13 - 1,103 - - Borrowings 14 226,499 246,535 120,000 135,000 Provisions 15 17,821 23,584 115 338 Total Non-Current Liabilities 244,320 271,222 120,115 135,338 Total Liabilities 957,726 1,010,557 245,634 294,261 Net Assets 354,004 341,946 565,276 564,085
Equity Share Capital 16 562,357 561,843 562,357 561,843 Reserves 17 12,550 12,776 57,613 57,613 (Accumulated Losses) (220,903) (232,673) (54,694) (55,371) Total Equity 354,004 341,946 565,276 564,085
27 METCASH ANNUAL REPORT 2001 Statements of Cash Flows Year Ended 30 April 2001
Metcash Group Metcash Trading Limited 2001 2000 2001 2000 Note $’000 $’000 $’000 $’000 Cash Flows from Operating Activities Receipts from Customers (i) 6,103,980 5,422,810 511,406 1,196,460 Payments to Suppliers and Employees (i) (5,966,637) (5,396,795) (530,128) (1,119,451) Dividends Received 435 331 20,917 17,900 Interest and Bill Discounts Received 1,066 563 644 269 Borrowing Costs Paid (17,659) (15,005) - (2) Impact of abolition of Wholesale Sales Tax (55,966) - - - Goods and Services Tax Paid (61,619) - - - Income Tax (Paid) Refunds Received (850) (8,456) - - Net Cash from (used in) Operating Activities 18 2,750 3,448 2,839 95,176
Cash Flows from Investing Activities Purchase of Property, Plant and Equipment (8,240) (7,191) - - Proceeds from Property, Plant and Equipment Sold 5,853 9,900 - 7,442 Payment for Intangible Assets (3,000) (3,058) - - Payment for Investments - (42) - (2) Proceeds from Investments Sold 768 3 768 2 Payment for Acquisition of Controlled Entities and Businesses 18 (7,302) (28,583) - (53,235) Proceeds on Disposal of Businesses 18 17,060 43,627 - - Loans repaid by Other Entities 108 150 - - Loans to Other Entities (122) (906) - (906) Net Cash from (used in) Investing Activities 5,125 13,900 768 (46,699)
Cash Flows from Financing Activities Proceeds from Borrowings 32,500 116,701 32,500 16,701 Repayment of Borrowings (47,500) (58,839) (47,500) (6,701) Principal Repayments under Finance Leases (13,945) (12,586) - (63) Proceeds from Issue of Securities 529 - 529 - Share Issue Costs (15) - (15) - Dividends Paid to Members of Parent Entity (16,079) (13,659) (16,079) (13,659) Net Cash from (used in) Financing Activities (44,510) 31,617 (30,565) (3,722)
Net Increase (Decrease) in Cash Held (36,635) 48,965 (26,958) 44,755
Cash at the Beginning of the Year 54,428 5,464 33,141 (11,614) Effects of Exchange Rate on Opening Cash (226) (1) - -
Cash at the End of the Year 18 17,567 54,428 6,183 33,141 (i) Metcash Trading Limited acts as the treasury function for certain controlled entities. In this capacity, Metcash Trading Limited received cash from customers and paid trade creditors on behalf of these controlled entities.
28 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 1. Statement of Significant Accounting Policies (a) Underlying Principles The financial report has been prepared as a general purpose financial report in accordance with Australian Accounting Standards, other mandatory professional reporting requirements (being Urgent Issues Group Consensus Views) and the Corporations Law. The accounting policies are consistent with those adopted in the previous year. The financial statements have also been prepared in accordance with the historical cost convention and do not take into account changes in either the general purchasing power of the dollar or in the prices of specific assets, except for those noted. The Metcash Group financial statements include Metcash Trading Limited and all of the entities which it controlled during the year and at balance date. All intercompany balances and transactions have been eliminated in full. Information from the financial statements of subsidiaries is included from the date the parent company obtains control until such time as control ceases. Where there is loss of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting period during which the parent company has control. On 4 September 2000, pursuant to resolution of shareholders the Company changed its name from Davids Limited to Metcash Trading Limited. (b) Foreign Currencies Transactions in foreign currencies are converted to local currency at the rate of exchange ruling at the date of the transaction. Amounts payable at balance date and denominated in foreign currencies have been converted to local currency using rates of exchange ruling at the end of the financial year. All overseas operations are deemed self-sustaining as each is financially and operationally independent of Metcash Trading Limited. The financial reports of overseas operations are translated using the current rate method and any exchange differences are taken directly to the foreign currency translation reserve. (c) Investments Investments in securities listed on a prescribed stock exchange are valued in accordance with a regular policy of revaluation whereby market valuations are obtained every year and carrying amounts are adjusted accordingly. The economic entity’s listed investments are considered to be one class of asset and revaluation increments are taken to an asset revaluation reserve. Unrealised revaluation decrements are transferred to the asset revaluation reserve, to the extent that they reverse previous unrealised gains. Any remaining decrement is taken to the profit and loss account. The potential capital gains tax is not taken into account in determining the revalued amounts of non-current investments, as it is the intention of the economic entity to hold the investments as part of its ongoing operations. Investments in associates are carried at the lower of the equity-accounted amount and recoverable amount in the Metcash Group financial statements and at the lower of cost and recoverable amount in Metcash Trading Limited’s financial statements. Investments in other shares are periodically valued utilising an earnings multiplier valuation basis. (d) Recoverable Amounts of Non-Current Assets The carrying values of non-current assets are reviewed at least annually by the Directors to ensure they are not in excess of the recoverable amount from these assets. The recoverable amount is determined on the basis of future cash flows discounted to their present value using a market determined risk adjusted discount rate. (e) Intangibles On acquisition of a controlled entity the difference between the purchase consideration plus incidental expenses and the fair value of identifiable net assets acquired is initially brought to account as goodwill or discount on acquisition. Purchased goodwill is amortised on a straight line basis over the period during which the benefits are expected to arise, up to a maximum of 20 years. The unamortised balance of goodwill is reviewed at each balance date and charged to the profit and loss account to the extent that applicable future benefits are no longer probable, or if the period over which they are expected to accrue is shortened then additional amortisation will be charged to the profit and loss account. Business names are amortised over their useful lives, being 12.5 years.
29 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 1. Statement of Significant Accounting Policies (Continued)
(f) Deferred expenses Significant items of carry forward expenditure having a benefit or relationship to more than one period are written off over the periods to which such expenditure relates.
(g) Inventories Inventories of finished goods are carried at the lower of cost and net realisable value. In accordance with industry practice, cost is determined by deducting from the supplier’s invoice price any purchase incentives, allowances, discounts and net marketing income. The method adopted to assign costs to inventories is first-in, first-out.
Retail businesses and property held for resale are classified as inventory and valued at the lower of cost and net realisable value. Cost includes the cost of acquisition and any subsequent development costs or improvements.
(h) Property, Plant and Equipment Property, plant and equipment are included at cost, or at the Directors’ valuation. Revaluations of freehold land and buildings are made in accordance with a regular policy whereby valuations are obtained at least every three years, and carrying amounts are adjusted accordingly.
Where assets have been revalued, the potential effect of capital gains tax on disposal has not been taken into account in the determination of the revalued carrying amount.
The depreciable amounts of all property, plant and equipment, including buildings and capitalised leased assets but excluding freehold land, are depreciated or amortised at rates based upon their expected useful lives, using the straight line basis, commencing from the time the asset is held ready for use.
The expected useful lives are as follows: 2001 2000 Buildings and leasehold property 50 years 50 years Plant and equipment 5-15 years 5-15 years
(i) Defined Benefit Superannuation Plans Contributions to defined benefit superannuation plans, maintained by the economic entity, are expensed in the year they are paid or become payable. No amount is recognised in respect of the net surplus or deficiency of each plan.
(j) Sales Revenue and Other Operating Revenue Sales revenue and other operating revenue are stated after deducting returns and allowances, duties and taxes, and other amounts collected on behalf of third parties. Other revenue includes advertising and marketing income, rental income, interest income, subscription income and revenue from statistical services.
(k) 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.
Finance Leases
Where property, plant and equipment is acquired by means of finance leases, the present value of the minimum lease payments is recognised as an asset at the beginning of the lease term and amortised on a straight line basis over the expected useful life of the leased asset. A corresponding liability is also established and each lease payment is allocated between the liability and interest expense.
30 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 1. Statement of Significant Accounting Policies (Continued) Operating Leases The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of the leased item, are recognised as an expense on a straight line basis.
Contingent rentals are recognised as an expense in the year in which they are incurred.
The present value of future payments for surplus leased space under non-cancellable operating leases is recognised as a liability, net of sub-leasing revenue, in the period in which it is determined that the leased space will be of no future benefit to the economic entity. Each subsequent lease payment is allocated between the liability and interest expense.
(l) Trade Debtors, Trade Creditors and Provisions Trade debtors are carried at amounts due.
A provision is raised for any doubtful debts based on a review of all outstanding amounts at balance date. Bad debts are written off in the period in which they are identified.
Trade creditors, including accruals not yet billed, are recognised when the economic entity becomes obliged to make future payments as a result of a purchase of assets or services. Trade creditors are generally settled within 30 days. Loans and bills of exchange are recognised when issued at face value. Interest on the borrowing instruments is recognised as an expense on an effective yield basis.
Provisions for Business Exit costs are raised where the economic entity has committed to the exit of businesses. Future lease costs, net of any income from sub leasing, are discounted to their net present value in determining the provision.
The carrying value of any deferred cash settlements for the sale of subsidiaries approximates its fair value. The fair value is estimated using current commercial borrowing rates for similar types of borrowing arrangements.
(m) Employee entitlements Provision is made for employee entitlement benefits accumulated as a result of employee rendering services up to the reporting date. These benefits include wages and salaries, annual leave, sick leave and long service leave.
Liabilities arising in respect of wages and salaries, annual leave, sick leave and any other employee entitlements expected to be settled within twelve months of the reporting date are measured at their nominal amounts. All other employee entitlement liabilities are measured at the present value of the estimated future cash outflow to be made in respect of services provided by employees up to the reporting date. In determining the present value of future cash outflows, the interest rates attaching to government guaranteed securities which have terms to maturity approximating the terms of the related liability are used.
Employee entitlements expenses and revenues arising in respect of the following categories:
• Wages and salaries, non-monetary benefits, annual leave, long service leave, sick leave and other leave entitlements; and
• Other types of employee entitlements are charged against profits on a net basis in their respective categories.
The value of the employee option scheme described in note 20 is not being charged as an employee entitlement expense.
(n) Revenue Recognition Revenue is recognised to the extent that it is probable that economic benefits will flow to the entity and the revenue can be reliably measured. Revenue is recognised for sale of goods when control of the goods has passed to the buyer.
31 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 1. Statement of Significant Accounting Policies (Continued) (o) Income Tax Income tax is accounted for using the liability method. The income tax expense for the current year is calculated using the 34% tax rate. Deferred tax balances have been restated to the reduced tax rate of 30%. The adjustment recognises that reversal of timing differences will occur within the 2001/02 financial year or later income tax years, at which time a lower rate of tax will apply. The corresponding adjustment has been charged to income tax expense.
(p) Securitisation Securitisation arrangements, where the risks and benefits associated with the securitised assets are retained by the economic entity, are regarded as financing transactions. Accordingly, the related assets are brought to account and disclosed as securitised and the amounts arising under the financing arrangement are brought to account as borrowings.
(q) Cash and Cash Equivalents For the purpose of the statements of cash flows, cash includes cash on hand, deposits held at call with banks and investments in money market instruments, net of bank overdrafts.
(r) Comparative Figures When necessary, comparative figures have been adjusted to conform with changes in presentation in the current period.
32 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 2. Operating Profit (Loss) Metcash Group Metcash Trading Limited 2001 2000 2001 2000 Operating revenue $’000 $’000 $’000 $’000 Net sales revenue 5,458,198 5,147,653 - -
Other operating revenue Dividends received – Other Corporations 1 1 - - Dividends received – Controlled Entities - - 20,917 17,900 Interest received – Other Corporations 1,065 563 644 269 Proceeds from sale of assets 100,365 57,752 767 7,444 Merchandising income 288,647 263,576 - - Rent received 28,499 22,948 1,089 1,888 Net profit of associates (Note 22) 358 14 Other income 29,000 36,304 - - 5,906,133 5,528,811 23,417 27,501
Operating Profit includes the following items: Borrowing Costs: Interest and finance charges paid or payable 16,049 12,343 - - Finance charges relating to finance leases 1,609 2,662 - 2 Borrowing costs capitalised (note 9) (1,535) - - - Total borrowing costs expensed 16,123 15,005 - 2
Depreciation: Buildings and leasehold property 722 761 251 261 Plant & equipment 15,607 15,376 2 2 Amortisation: Leased assets 4,342 6,902 - - Goodwill 17,662 17,954 - - Business Names 1,309 1,309 - - Total depreciation and amortisation expense 39,642 42,302 253 263
Bad and doubtful debts expense 4,485 2,505 - -
Contributions to defined benefit superannuation plans 143 839 - -
Operating lease rentals – minimum lease payments 61,071 82,015 - - Operating lease rentals – contingent rentals 289 300 - -
Net amount provided for: Employee entitlements 14,970 10,935 - - Store Lease & Remediation 2,974 3,185 - - Obsolete Stock 198 209 - -
Loss (Profit) on sale of property, plant and equipment 61 (256) - (53) Net (gain) on disposal of Foodservice business (15,636) - - - Net loss (gain) on disposal of Retail stores 5,891 (4,632) - - Net (gain) on sale of Investments (17) - (17) - Net (gain) on exit from Joint Venture (611) - - -
33 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 3. Abnormal Items Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Income Disposal of John Lewis Foodservice Business 15,636 - - - Income tax applicable thereto (5,316) - - - (i) 10,320 - - -
Expense Business reorganisation expenses (ii) 3,286 9,233 - - Income tax applicable thereto (1,117) (3,232) - - 2,169 6,001 - - Loss on exit from retail operations (iii) 17,290 5,248 - - Income tax applicable thereto (5,879) (1,837) - - 11,411 3,411 - - GST Implementation costs (iv) 1,571 1,710 - - Income tax applicable thereto (534) (599) - - 1,037 1,111 - - Total abnormal items charged as expense before income tax 6,511 16,191 - - Income tax (benefit) attributable to abnormal items (2,214) (5,668) - - Total abnormal items after income tax 4,297 10,523 - -
(i) The economic entity has disposed of the net assets of the John Lewis Foodservice business on 30 April 2001 (refer note 18 (e)).
(ii) Business reorganisation expenses comprise costs associated with the economic entity’s previously announced restructuring plans. These expenses include staff redundancies associated with these restructure plans.
(iii) Exit from retail operations includes loss on sale of stores, abnormal shrinkage costs and other costs associated with the exit from this segment.
(iv) GST implementation costs include those specifically identified, incremental costs associated with the Company’s preparation for the implementation of the Goods and Services Tax on 1 July 2000.
34 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 4. Taxation Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 The prima facie income tax expense on operating profit reconciles to the income tax expense as follows:
Prima facie income tax on operating profit at 34% (2000 – 36%) 19,395 8,896 7,508 6,827
Tax effect of permanent differences: Depreciation and amortisation 6,695 7,209 - - Non-deductible expenses 117 117 - - Non-taxable profits - (1,210) - - Rebateable dividends - - (7,112) (6,444) Under (Over) provision of tax in prior years (1,869) 376 75 (829) Income tax expense (benefit) before abnormal items of income tax 24,338 15,388 471 (446) Abnormal (gain) loss attributable to change in tax rate - 8,270 - (26)
Income tax expense (benefit) attributable to operating profit 24,338 23,658 471 (472)
Income tax expense is comprised of: Future income tax benefit 26,127 18,433 396 19 Income tax payable 80 4,943 - - Under (Over) provision in the prior year (1,869) 376 75 (829) Provision for deferred income tax - (94) - 338 Income tax expense attributable to operating profit 24,338 23,658 471 (472)
Note 5. Earnings Per Share Weighted average number of ordinary shares used in the calculation of basic earnings per share 484,302,348483,729,763
(a) Classification of Securities As at 30 April 2001, the Company has on issue 27,034,500 (2000:22,055,500) options. All 27,034,500 options existing at 30 April 2001 are considered to be dilutive and are included in the calculation of diluted earnings per share. In addition, the Company has on issue 151,761,855 9% non-cumulative, converting preference shares (CPS). All 151,761,855 CPS are considered to be dilutive and are included in the calculation of diluted earnings per share at a conversion ration of 1.41 ordinary shares to 1 CPS, based on the 30 April 2001 Ordinary share price.
(b) Calculation of Earnings per Share Basic earnings per share is determined by dividing operating profit after tax and after preference dividends by the weighted average number of ordinary shares outstanding during the financial year.
Diluted earnings per share is determined by dividing the operating profit after tax and after preference dividends adjusted for the effect of earnings on potential ordinary shares, by the weighted average number of ordinary shares (both issued and potentially dilutive) outstanding during the financial year.
35 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 6. Dividends Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Ordinary Final dividend proposed 7,276 2,419 7,276 2,419
Preference Interim dividend paid 6,792 6,885 6,792 6,885 Final dividend paid 6,867 6,774 6,867 6,774 Total dividends provided for or paid 20,935 16,078 20,935 16,078 All dividends were fully franked at 34% for Preference Dividends and 30% for Final Dividend Proposed (2000 - 36%)
Dividend Franking Account Franking credits available for the subsequent financial year are:
Franking account balance as at the end of the financial year 130,980 133,900 17,844 12,728 Franking debits that will arise from the payment of dividends as at the end of the financial year (7,276) (2,419) (7,276) (2,419) Restatement of franking account balance to 30% 26,461 - 3,605 - Restatement of franking account balance to 34% - 12,085 - 948 150,165 143,566 14,173 11,257
Note 7. Receivables Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Current Trade debtors – Securitised 373,673 373,448 - - Trade debtors - Non-securitised 87,879 42,738 - - Less: Provision for doubtful debts (4,810) (4,470) - - 456,742 411,716 - - Amount receivable from sale of Foodservice business 69,000 - - - Amounts receivable from sale of retail stores 10,037 19,538 - - Other debtors 21,763 37,018 15 112 Amounts receivable from controlled entities - - 311,936 331,079 557,542 468,272 311,951 331,191
Non-Current Amounts receivable from sale of retail stores 10,544 - - - Other debtors 625 611 - - 11,169 611 - -
36 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 7. Receivables (Continued)
(a) Significant Terms and Conditions Trade debtor terms vary by business unit. At 30 April 2001, 89.9% of trade debtors are required to be settled within 30 days (2000: 69.0%) and 10.1% of trade debtors have terms extending from 30 days to 60 days (2000: 30.3%). The re m a i n i n g 0% of trade debtors have terms of 84 days (2000:0.7%).
The amount receivable from the sale of the Foodservice business is secured by a letter of credit (LC) from an international bank with a maturity date of 2 July 2001. Amounts receivable from sale of retail stores are secured by the assets of the individual stores and are receivable over varying terms of up to 5 years from the date of sale. Of the amounts receivable from sale of retail stores, $10,881,000 attract a weighted average interest rate of 5.98% per annum.
The economic entity has securitised certain trade receivables from 30 April 1999 and again from 15 September 1999 by way of granting an equitable interest over those receivables to a special purpose trust managed by a major Australian bank. The terms of the securitisation require, as added security, that at any time the book value of the securitised receivables must exceed by at least a certain proportional amount, the funds provided by the trust to the economic entity as a consequence of securitisation.
At the end of the financial year trade receivables of $373,673,000 (2000: $373,448,000) had been securitised as disclosed above, with $220,000,000 (2000: $235,000,000) of funds received (refer note 14). The resultant security margin exceeded the minimum required at that date.
(b) Credit Risk The economic entity does not have any significant exposure to any individual customer or counterparty. Major concentrations of credit risk arising from the economic entity’s receivables relate primarily to the retail grocery, food ser- vices and liquor industries and are substantially based in Australia.
(c) Net Fair Values The Directors consider the carrying amount of trade and other debtors to approximate their net fair values.
Note 8. Inventories Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Finished goods – at cost 297,175 308,592 - - Less: Provision for obsolescence (5,076) (3,184) - - 292,099 305,408 - - Businesses and property held for resale (i) 402 2,730 - - 292,501 308,138 - - (i) This includes land of $206,000 (2000: $206,000) at cost and no capitalised costs. The Directors consider the land amounts to be carried at not more than their net realisable value.
37 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 9. Other Assets Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Current Prepayments 9,657 9,250 1,217 1,490 Non-Current Future income tax benefit 42,921 67,929 39 - Deferred expenses 19,801 14,919 - - 62,722 82,848 39 -
The consolidated future income tax benefit includes $40,790,000 (2000: $54,420,000) attributable to tax losses carried forward by controlled entities. Deferred expenses include $19,148,000 (2000: $13,986,000) in relation to the implementation of business systems software across the group. Included in deferred expenses are borrowing costs which have been recognised during the financial year as part of the carrying amount of the asset. The costs have been capitalised at a rate of 10.23% and are to the value of $1,535,000 (2000: $nil).
Note 10. Investments Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Non-Current Listed securities (at market value) 18 769 - 751
Shares in associates (at equity accounted amount) Note 22 840 917 - -
Shares in other entities (at Directors’ valuation 1997) 121 121 - - Shares in other entities (at cost) 42 42 - -
Shares in controlled entities (at cost) - - 476,266 476,266 1,021 1,849 476,266 477,017 a) Net Fair Values The Directors consider the carrying value of listed securities, being securities that are readily traded on organised markets, and the carrying value of shares in other entities to fairly reflect their net fair values.
38 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 11. Property, Plant and Equipment Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Core Properties Freehold Land At Directors’ valuation 1999 (i) 7,500 11,992 3,200 3,200 At cost 200 - - - Total Freehold Land 7,700 11,992 3,200 3,200
Buildings At Directors’ valuation 1999 (i) 24,557 30,309 12,550 12,550 Less: Accumulated depreciation (982) (603) (502) (251) Total Buildings 23,575 29,706 12,048 12,299
Leasehold Property At Directors’ valuation 1999 (i) 9,000 9,000 - - Less: Accumulated amortisation (310) (155) - - 8,690 8,845 - - Total Land and Buildings 39,965 50,543 15,248 15,499
Plant and Equipment At cost 73,899 86,396 10 10 Less: Accumulated depreciation (48,304) (55,999) (4) (2) 25,595 30,397 6 8 At independent valuation 1997 (ii) 40,264 57,457 - - Less: Accumulated depreciation (23,539) (23,814) - - 16,725 33,643 - - Total Plant and Equipment 42,320 64,040 6 8
Leased Assets Plant and equipment under finance lease 19,154 37,477 - - Less: Accumulated amortisation (6,928) (13,476) - - Total Leased Assets 12,226 24,001 - -
Total Property, Plant and Equipment 94,511 138,584 15,254 15,507
(a) Property Valuations (i) Land and buildings were revalued by Directors as at 30 April 1999. The valuations were based on the fair market value of the properties on an existing use basis.
(ii) Plant and equipment was independently valued in November 1996 on an existing use basis.
(b) Recent Valuations of Land and Buildings The Directors consider the carrying amount of land and buildings to be materially consistent with their recent valuations.
39 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 12. Intangibles Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Goodwill at recoverable amount 175,377 180,522 - - Less: Accumulated amortisation (42,649) (29,543) - - Goodwill at cost 132,199 132,127 - - Less: Accumulated amortisation (13,636) (9,773) - - 251,291 273,333 - - Business names - at cost 16,367 16,367 - - Less: Accumulated amortisation (2,618) (1,309) - - 13,749 15,058 - - Licences - 132 - - 265,040 288,523 - -
Note 13. Accounts Payable Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Current Trade creditors 597,117 539,760 118,131 149,025 Other creditors 59,006 138,677 112 7,479 656,123 678,437 118,243 156,504 Non-Current Other creditors - 1,103 - -
Trade creditors are generally settled within 30 days.
The Directors consider the carrying amounts of trade and other creditors to approximate their net fair values.
Note 14. Borrowings Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Current (Secured) Lease liabilities 6,036 12,068 - - 6,036 12,068 - - Non-Current (Secured) Securitisation finance 220,000 235,000 120,000 135,000 Bills payable - 1,400 - - Lease liabilities 6,499 10,135 - - 226,499 246,535 120,000 135,000
40 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 14. Borrowings (Continued)
(a) Significant terms and conditions The securitisation finance has no finite term and is not expected to be repaid in the ordinary course of business in the coming financial year. The securitisation facility may be terminated by the trust manager at short notice in the event of an act of default, which includes the insolvency of any of the individual companies securitising trade receivables, failure by the economic entity to remit funds when due, or a substantial deterioration in the overdue proportion of the eligible receivables.
Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default and have an average term of four years.
(b) Net Fair Values The Directors’ consider the carrying value of securitisation finance and lease liabilities represent their net fair values.
Note 15. Provisions Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Current Dividends – ordinary shares 7,276 2,419 7,276 2,419 Employee entitlements 20,691 25,264 - - Income tax 617 291 - - Business Exit Costs 16,502 11,094 - - Other 6,161 9,762 - - 51,247 48,830 7,276 2,419
Non-Current Deferred income tax - - - 338 Employee entitlements 12,464 15,142 - - Business Exit Costs 5,357 8,442 115 - 17,821 23,584 115 338
(a) Employee Entitlements Aggregate employee entitlement liability (i) 33,155 40,406 - -
(i) Aggregate employee entitlements include entitlements measured at present values of future amounts expected to be paid based on a 3% (2000: 2%) per annum projected weighted average increase in wage and salary rates over an average period of 10 years (2000: 10 years). Present values are calculated using a weighted average rate of 5.82% (2000: 6.37%) based on government guaranteed securities with similar maturity terms.
(b) Net Fair Values The Directors consider the carrying amounts of provisions for dividends, employee entitlements, income tax, business exit costs and other provisions to approximate their net fair values.
41 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 16. Share Capital Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Issued share capital 485,086,863 fully paid ordinary shares 405,653 405,139 405,653 405,139 151,761,855 9% fully paid non-cumulative, converting preference shares 156,704 156,704 156,704 156,704 562,357 561,843 562,357 561,843
Movements in share capital Opening balance 561,843 561,843 561,843 561,843 Issued during the year – Customer Share Incentive Scheme 1,357,100 ordinary shares at 39 cents per share 529 - 529 - Share Issue Costs (15) - (15) - Closing balance 562,357 561,843 562,357 561,843 (a) On 6 November 2000, 1,357,100 ordinary shares were issued as part of a Customer Share Incentive Scheme. Customers were entitled to purchase 3 ordinary shares for every $1,000 of purchases made during the year ended 30 April 2000 at a 10 per cent discount to market value.
Options over ordinary shares in Metcash Trading Limited Number Number Opening balance 22,055,500 22,539,500 Granted during the period 4,979,000 3,000,000 Expired during the period - (3,484,000) Closing balance 27,034,500 22,055,500 Issued subsequent to period end - -
Outstanding at date of Directors’ report 27,034,500 22,055,500
(a) Executive Options - On 31 October 1997 the grant of options to a former Executive Director was approved at the Annual General Meeting of shareholders. Pursuant to this, 6,000,000 options were issued. The options are exercisable at exercise prices ranging from $0.90 to $1.20 until 31 July 2002. At 30 April 2001, 6,000,000 of these options remain outstanding (2000: 6,000,000). (b) Employee Option Plan - On 23 November 1998, the Employee Option Plan was approved at the Annual General Meeting of shareholders. Pursuant to this plan, the following options were granted to employees of the Company, including Executive Directors:
42 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 16. Share Capital (Continued)
Issue Date Exercise Date Exercise Price Original Issue Outstanding at Number of Balance Date Employees granted 26 March 1999 26 March 2002 44 cents 9,443,700 8,769,300 2,067 26 March 1999 26 March 2003 44 cents 3,147,900 2,923,100 2,067 26 March 1999 26 March 2004 44 cents 3,147,900 2,923,100 2,067 1 Nov 1999 1 Nov 2002 54 cents 870,000 870,000 2 1 Nov 1999 1 Nov 2003 54 cents 290,000 290,000 2 1 Nov 1999 1 Nov 2004 54 cents 290,000 290,000 2 11 Aug 2000 11 Aug 2003 43.1 cents 2,823,600 2,823,600 241 11 Aug 2000 11 Aug 2004 43.1 cents 941,200 941,200 241 11 Aug 2000 11 Aug 2005 43.1 cents 941,200 941,200 241 25 Nov 2000 25 Nov 2003 43.1 cents 133,800 133,800 50 25 Nov 2000 25 Nov 2004 43.1 cents 44,600 44,600 50 25 Nov 2000 25 Nov 2005 43.1 cents 44,600 44,600 50 15 Dec 2000 15 Dec 2003 43.1 cents 24,000 24,000 2 15 Dec 2000 15 Dec 2004 43.1 cents 8,000 8,000 2 15 Dec 2000 15 Dec 2005 43.1 cents 8,000 8,000 2 22,158,500 21,034,500 2,362 The market price of Metcash Trading Limited ordinary shares at 30 April 2001 was 74 cents.
(c) Terms of Converting Preference Shares All Converting Preference Shares convert to ordinary shares 4 years from the date of issue, being 8 December 2001. The conversion price is dependent upon the weighted average sale price per share of ordinary shares traded on the Australian Stock Exchange for the 20 ASX business days prior to the conversion date. The maximum conversion price is fixed at $1.00 and the minimum conversion price is fixed at $0.50.
43 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 17. Reserves Metcash Group Metcash Trading Limited 2001 2000 2001 2000 Note $’000 $’000 $’000 $’000 Asset revaluation (i) - - 52,843 52,843 Capital profits (ii) 12,777 12,777 4,770 4,770 Foreign currency translation (iii) (227) (1) - - 12,550 12,776 57,613 57,613
(i) Asset revaluation Opening balance - - 52,843 52,843 Closing balance - - 52,843 52,843
(ii) Capital profits Opening balance 12,777 12,777 4,770 4,770 Closing balance 12,777 12,777 4,770 4,770
(iii) Foreign currency translation Opening balance (1) - - - Loss on translation of overseas controlled entities (226) (1) - - Closing balance (227) (1) - -
Note 18. Cash Flows Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 (a) Reconciliation of Operating Profit after Income Tax to Net Cash from (used in) Operating Activities Operating Profit after income tax 32,705 1,053 21,612 19,435 Add (Less): Loss (Profit) on sale of property, plant and equipment 61 (256) - (53) Depreciation and amortisation 39,642 42,302 253 263 Movement in income tax balances 23,488 15,202 (39) 721 (Profit) on sale of investments (17) - (17) - Equity (profit) of associates (358) (14) - - Dividends from associates 435 - - - Gain on exit from joint venture (611) - - - Loss (Profit) on sale of retail stores 5,891 (4,632) - -
44 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 18. Cash Flows (Continued) Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Changes in Assets and Liabilities (net of effect of acquisitions and disposal of controlled entities and businesses):
Decrease (Increase) in inventories 6,564 (13,023) - 2 Decrease (Increase) in prepayments and deferred costs (5,151) (13,257) 275 647 Decrease (Increase) in trade and other debtors (72,823) (44,850) 19,240 68,417 Increase (Decrease) in creditors and provisions (27,076) 20,923 (38,485) 5,744 Net Cash from (used in) Operating Activities 2,750 3,448 2,839 95,176
(b) Reconciliation of Cash Cash at the end of the financial year as shown in the statements of cash flows is reconciled to the related items in the balance sheets as follows: Cash 17,567 54,428 6,183 33,141 Bank Overdrafts - - - - 17,567 54,428 6,183 33,141
(c) Non-Cash Financing and Investing Activities During the financial year the economic entity acquired plant and equipment by means of finance leases. The acquisitions are not reflected in the statement of cash flows and amount to: 4,277 8,215 - -
(d) Finance Facilities Bank overdraft available 33,000 28,000 33,000 28,000 Bank overdrafts utilised - - - -
Securitisation finance and loans available 245,000 248,000 145,000 148,000 Securitisation finance and loans utilised 220,000 235,000 120,000 135,000
Lease finance facility available 17,500 17,000 - - Lease finance facility utilised 12,535 13,749 - -
Indemnity guarantee facility available 18,212 17,600 18,212 17,600 Indemnity guarantee facility utilised 18,212 17,600 18,212 17,600
Foreign currency dealing limit facility available 5,500 2,000 5,500 2,000 Foreign currency dealing limit facility utilised - - - -
45 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 18. Cash Flows (Continued) Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 (e) Entities and businesses disposed of During the period the economic entity disposed of a number of its retail stores and a property joint venture. Details of the disposals are as follows: Plant and equipment 20,770 14,527 - - Inventory 12,502 17,920 - - Receivables 281 772 - - Intangibles 164 10,636 - - Future Income Tax Benefit 719 569 - - Employee provisions (3,496) (1,581) - - Net assets disposed of 30,940 42,843 - - Gain on disposal (5,280) 4,632 - - Total consideration received 25,660 47,475 - - Amounts receivable under deferred consideration (included in other debtors) (8,600) (3,848) - - Cash consideration received 17,060 43,627 - -
On 30 April 2001 the economic entity disposed of the net assets of the John Lewis Foodservice business. Details of the disposals are as follows: Plant and equipment 9,866 - - - Receivables 34,762 - - - Inventory 21,985 - - - Other assets 5,171 - - - Intangibles 7,556 - - - Future Income Tax Benefit 1,225 - - - Accounts payable (23,597) - - - Employee provisions (3,604) - - - Net assets disposed of 53,364 - - - Gain on disposal 15,636 - - - Total consideration received 69,000 - - - Amounts receivable under deferred consideration (included in other debtors) (69,000) - - -
Cash consideration received - - - -
46 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 18. Cash Flows (Continued) (f) Acquisition of Controlled Entities and Businesses (i) On 23 June 2000 a controlled entity acquired the business assets and liabilities of Stewart and Co for cash consideration of $1,052,000.
(ii) On 1 July 2000 a controlled entity acquired the business assets and liabilities of B&J Distributors for cash consideration of $1,000,000.
(iii) On 31 July 2000 a controlled entity acquired the business assets and liabilities of Star Holdings for cash consideration of $1,248,000.
(iv) On 31 August 2000 a controlled entity acquired the business assets and liabilities of Top End Wholesalers for cash consideration of $3,536,000.
(v) On 12 February 2001 a controlled entity acquired the business assets and liabilities of Redgwells Foodservice for cash consideration of $456,000.
Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Details of the aggregate cash flows and the aggregate assets and liabilities at the dates of acquisition were as follows:
Cash consideration and acquisition costs paid 7,302 56,301 - - Cash balances acquired - (27,718) - - Cash consideration as reflected in the consolidated financial report 7,302 28,583 - - Exisiting investment - 13,148 - - 7,302 41,731 - -
Plant and equipment 631 5,868 - - Inventory 3,429 71,060 - - Receivables - 197,614 - - Prepayments 150 408 - - Future Income Tax Benefit 98 1,942 - - Accounts payable and provisions (214) (223,603) - - Income tax provision - (4,191) - - Borrowings - (87,824) - - Fair value of net liabilities acquired 4,094 (38,726) - - Goodwill on acquisition 3,208 80,457 - - 7,302 41,731 - -
47 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 19. Segment Information Food Distribution Liquor Distribution Retail Consolidated 30 April 30 April 30 April 30 April 30 April 30 April 30 April 30 April 2001 2000 2001 2000 2001 2000 2001 2000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Sales to customers 3,723,401 3,248,680 1,734,797 1,418,399 - 480,574 5,458,198 5,147,653 Inter-segment sales 335,813 615,988 181,785 122,822 ---- Unallocated Revenue ------447,935 381,158 Total Revenue 4,059,214 3,864,668 1,916,582 1,541,221 - 480,574 5,906,133 5,528,811 Segment Result 63,485 57,386 27,384 20,747 - (14,147) 90,869 63,986 Unallocated Expenses (33,826) (39,275) Operating profit before tax 57,043 24,711 Segment Assets 562,231 497,772 359,911 350,567 - 72,490 922,142 920,829 Unallocated Assets 389,588 431,674 Total Assets 1,311,730 1,352,503
Geographic Segments The economic entity operates predominantly in Australia. The New Zealand operation represents less than 10% of revenue, results and assets for the Consolidated Entity.
(a) Industry Product and Services The economic entity predominantly operates in the industries indicated. Food distribution activities comprise the distribution of grocery and tobacco supplies to retail outlets, convenience stores and hospitality outlets. Liquor distribution activities comprise the distribution of liquor products to retail outlets and hotels. Retail activities relate to those retail outlets previously owned by the economic entity.
(b) Inter-Segment Pricing The selling price between segments is at normal selling price and is paid under similar terms and conditions as any other customers of the economic entity.
Note 20. Superannuation Plans and Employee Ownership Schemes The accrued benefits, based on actuarial assessments made on 1 July 1999 for the Jewel Superannuation Fund, together with the plan assets at net market value and vested benefits at the most recently available balance date of each defined benefit fund sponsored by the Company and other entities in the economic entity are:
Accrued Net Surplus Plan Vested Benefits (Deficit) Assets Benefits Jewel Superannuation Fund $’000 $’000 $’000 $’000 2001 5,537 518 6,055 5,035 2000 7,856 957 8,813 7,355 The Net Surplus for the current year is based on an actuarial assessment made on 31 March 2001 by Mr Steven Defina, FIAA.
48 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 20. Superannuation Plans and Employee Ownership Schemes (continued) Employee Option Scheme An employee option scheme has been established where employees of the consolidated entity have been granted options over the ordinary shares of Metcash Trading Limited. The options, issued for nil consideration, were offered to all eligible employees of the consolidated entity and could be taken up at their election. The options cannot be transferred, will not be quoted on the ASX and lapse on termination of employment. Details of options issued and outstanding are contained in note 16.
Note 21. Capital Commitments Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 (a) Capital expenditure commitments contracted for at balance date but not provided for
Due within 1 year 2,660 - - -
(b) Finance Lease Commitments Due within 1 year 6,689 13,510 - - Due within 1 - 5 years 7,286 10,628 - - Due after 5 years - 210 - - 13,975 24,348 - - Future Finance Charges (1,440) (2,145) - - 12,535 22,203 - - Reconciled to: Current Liabilities (Note 14) 6,036 12,068 - - Non-Current Liabilities (Note 14) 6,499 10,135 - - 12,535 22,203 - -
(c) Operating Leases Commitments Minimum lease payments (i) Due within 1 year 65,700 75,579 - - Due within 1 - 5 years 194,516 218,947 - - Due after 5 years 189,497 221,272 - - 449,713 515,798 - - Less: Lease costs provided for in Store Lease & Remediation provisions (ii) (7,207) (11,033) - - 442,506 504,765 - -
(i) Operating leases have an average lease term of 5 years and an implicit interest rate of 7%. Assets which are the subject of operating leases are primarily Land and Buildings.
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.
Certain properties under operating lease have been sublet to third parties. The total of future minimum lease payments expected to be received at the reporting date is $94,778,000 (2000: $104,005,000).
(ii)These commitments represent payments due for either vacated lease premises or premises sublet to third parties at a subsidised rental under non-cancellable operating leases. The commitments have been recognised as a liability as the remaining payments for the premises will provide no further benefits to the consolidated entity. The payments have been discounted at the rate implicit in the lease. 49 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 22. Investments in Associates Consolidated Carrying amount Name of Associate Principal Activity Ownership Balance 2001 2000 Interest Date $’000 $’000
Produce Traders Trust Distribution of Fruit & Vegetables 50% 30 June 840 917 840 917
2001 2000 $’000 $’000 Share of reserves attributable to associates Retained profits 269 356
Results of associates Operating profit before abnormals and tax 358 14 Income tax expense - - Net Profit (Loss) after tax 358 14
Movements in carrying amount of associates Carrying amount at the beginning of the year 917 14,381 Share of net profit (losses) for the period 358 14 Elimination of investment due to associate being fully acquired - (13,148) Current year distributions received (435) (330) 840 917
Contingent Liabilities and Capital Commitments There are no contingent liabilities or capital commitments of associates.
Assets and Liabilities of Associates The economic entity’s share of the assets and liabilities of associates in aggregate are as follows: Current assets 1,155 1,161 Non-current assets 427 437 Current liabilities (838) (889) Non-current liabilities (19) (36) Net assets 725 673
50 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 23. Controlled Entities Controlled Entities Incorporated in New South Wales Controlled Entities Incorporated in Queensland
Australian Liquor Marketers Pty Limited (b) Australian Liquor Marketers Pty Ltd (Qld) (b) Campbells Cash and Carry Pty Ltd Denham Bros Limited (b) Clancy’s Food Stores Pty Ltd Moucharo Pty Ltd (b) Cotswrap Pty Ltd (b) QIW Limited (b) Metcash Export Services Pty Ltd QIW Employees Superannuation Pty Ltd (b) Davids Supermarkets Pty Ltd QIW Staff Superannuation Pty Ltd (b) IGA Retail Services Pty Ltd Queensland Independent Wholesalers Limited (b) Jewel Food Stores Pty Ltd Regzem (No. 3) Pty Ltd (b) Jewel Superannuation Fund Pty Ltd (b) Regzem (No. 4) Pty Ltd (b) M-C International Australia Pty Ltd (b) Retail Stores Development Finance Limited (b) Metro Cash & Carry Pty Ltd (b) Rockblock Pty Ltd (b) Property Reference Pty Ltd RSDF Nominees Pty Ltd (b) Retail Merchandise Services Pty Ltd Davids Food Services Pty Ltd (b)
Controlled Entities Incorporated in Victoria Controlled Entities Incorporated in South Australia Australis Marine Services (Aust) Pty Ltd (b) Arrow Limited Bofeme Pty Ltd (b) Blue Lake Exporters Pty Ltd City Ice and Cold Storage Company Pty Ltd (b) Casuarina Village Shopping Centre Pty Ltd Composite Buyers Finance Pty Ltd (b) IGA Distribution (SA) Limited Composite Buyers Limited (b) G and R Wills (Holdings) Ltd Composite Pty Ltd (b) Gawler Supermarkets Pty Ltd David Boehm Pty Ltd (b) George Wills and Co Ltd IGA Distribution Pty Ltd Green Triangle Meatworks Limited IGA Distribution (Vic) Pty Ltd Independent Freight Services Pty Ltd Five Star Wholesalers Pty Ltd Pasadena Properties Pty Ltd John Lewis Foodservice Pty Ltd Pasadena Retail Pty Ltd Keithara Pty Ltd (b) Plympton Properties Pty Ltd Knoxfield Transport Service Pty Ltd (b) Seaford Supermarkets Pty Ltd Moorebank Transport Pty Ltd (b) Wimbledon Unit Trust (b) Payless Superbarn (NSW) Pty Ltd (b) Payless Superbarn (VIC) Pty Ltd (b) Rainbow Supermarkets Pty Ltd (b) Mirren (Australia) Pty Ltd Stonemans (Management) Pty Ltd Stonemans Self Service Pty Ltd
51 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 23. Controlled Entities (Continued) Controlled Entities Incorporated in New Zealand Controlled Entities Incorporated in Western Australia Tasman Liquor Company Ltd (a) Australian Liquor Marketers (WA) Pty Ltd (b) All controlled entities are 100% owned (2000: 100%). (a) Audited by other member firms of Ernst & Young International
(b) Pursuant to Class Order 98/1418, relief has been granted to all controlled entities, except those marked (a) or (b), from the Corporations Law requirements for preparation, audit and lodgement of their financial reports. As a condition of the Class Order, Metcash Trading Limited and the controlled entities subject to the Class Order (the "Closed Group") entered into a Deed of Cross Guarantee on 27 May 1994 or assumption deeds dated 7 February 1995 and 20 May 1996. The effect of the deed is that Metcash Trading Limited has guaranteed to pay any deficiency in the event of winding up of these controlled entities. The controlled entities have also given similar guarantees in the event that Metcash Trading Limited is wound up.
The consolidated profit and loss statement and balance sheet of entities which are members of the closed group are as follows: Consolidated profit and loss statement 2001 2000 $’000 $’000 Operating profit before income tax 23,509 26,979 Income tax attributable to operating profit (8,307) (19,038) Operating profit after Income tax 15,202 7,941 (Accumulated losses) at the beginning of the period (220,852) (212,715) Available for appropriation (205,650) (204,774) Dividends Provided for or paid (20,935) (16,078) (Accumulated Losses) at the end of the period (226,585) (220,852)
52 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 23. Controlled Entities (Continued) 2001 2000 $’000 $’000 Consolidated Balance Sheet Current assets Cash 10,419 46,126 Receivables 295,986 201,912 Inventories 190,287 196,264 Other 2,124 7,000 Total Current Assets 498,816 451,302
Non-current assets Receivables 38 43 Investments 231,303 232,191 Property, plant and equipment 87,906 125,374 Intangibles 85,341 108,623 Other 58,758 73,654 Total Non-current Assets 463,346 539,885 Total Assets 962,162 991,187
Current liabilities Accounts payable 428,702 430,595 Borrowings 4,993 11,849 Provisions 39,148 30,705 Total Current Liabilities 472,843 473,149
Non-current liabilities Accounts payable - 1,103 Borrowings 125,989 143,890 Provisions 14,781 19,277 Total Non-current Liabilities 140,770 164,270 Total Liabilities 613,613 637,419 Net Assets 348,549 353,768
Equity Share Capital 562,357 561,843 Reserves 12,777 12,777 Accumulated Losses (226,585) (220,852) Total Equity 348,549 353,768
53 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 24. Directors’ and Executives’ Remuneration (a) Directors’ Remuneration Income paid, payable or otherwise made available to Directors by entities in the economic entity and related parties in connection with the management of affairs of the parent entity or its controlled entities are shown in the following bands:
Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $ Number Number Number Number Nil - 9,999 3 2 3 2 10,000 - 19,999 - 2 - 2 20,000 – 29,999 - 1 - 1 50,000 - 59,999 2 - 2 - 60,000 - 69,999 - 1 - 1 70,000 - 79,999 1 1 1 1 200,000 - 209,999 1 - 1 - 400,000 – 409,999 - 1 - 1 410,000 – 419,999 - 1 - 1 510,000 - 519,999 2 - 2 - 650,000 – 659,999 - 1 - 1 850,000 – 859,000 1 - 1 - The aggregate income of the directors referred to above ($’000) 2,288 1,675 2,288 1,675 Remuneration excludes the value of option grants to Directors during the year.
54 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 24. Directors’ and Executives’ Remuneration (Continued)
(b) Executives’ Remuneration The number of executives whose total income for the year falls within the following bands were: Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $ Number Number Number Number 100,000 - 109,999 7 26 - - 110,000 - 119,999 6 20 - - 120,000 - 129,999 10 16 - - 130,000 - 139,999 4 14 - - 140,000 - 149,999 7 8 - - 150,000 - 159,999 11 7 - - 160,000 - 169,999 5 6 - - 170,000 - 179,999 10 6 - - 180,000 - 189,999 2 3 - - 190,000 - 199,999 8 3 - - 200,000 - 209,999 3 2 - - 210,000 - 219,999 2 1 - - 220,000 - 229,999 6 - - - 230,000 - 239,999 4 1 - - 250,000 - 259,999 2 - - - 260,000 - 269,999 3 1 - - 270,000 - 279,999 - 1 - - 290,000 – 299,999 - 2 - - 300,000 - 309,999 1 - - - 310,000 - 319,999 - 1 - - 320,000 – 329,999 - 1 - - 330,000 - 339,999 1 - - - 350,000 - 359,999 - 1 - - 370,000 - 379,999 1 - - - 390,000 - 399,999 1 - - - 400,000 – 409,999 1 1 - - 410,000 – 419,999 1 1 - - 420,000 - 429,999 1 - - - 430,000 - 439,999 1 - - - 510,000 - 519,999 2 - - - 650,000 – 659,999 - 1 - - 760,000 – 769,999 * - 1 - - 850,000 - 859,999 1 - - - The aggregate income of the executives referred to above ($’000) 20,056 19,511 - - *These values include amounts paid for termination of contract.
Remuneration excludes the value of option grants to Directors and executives during the year.
(c) No prescribed benefits were given to a person in connection with the retirement of a person from a prescribed office, in relation to a company in the economic entity, during the financial year.
55 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 25. Auditors’ Remuneration Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Remuneration received, or due and receivable, by the auditors of the parent entity for: Auditing or review of the financial statements 596 707 - - Other services 28 57 - -
Amounts received or due and receivable by auditors other than the auditors of Metcash Trading limited for: Audit or review of the financial statements of a controlled entity 48 25 - -
Note 26. Contingent Liabilities Contingent liabilities for which provisions are not included in the accounts are:
Other persons A controlled entity has entered into agreements to buy back stock and acquire plant and equipment from third parties under certain circumstances amounting to: 3,084 4,084 - -
A controlled entity has guaranteed third party loans to storeowners amounting to: 1,560 3,000 - -
The Company and certain controlled entities have granted bank guarantees to third parties in respect of property lease obligations to the value of: 17,983 19,663 - 19,380
From time to time the Metcash Group is involved in litigation with external parties. The estimated exposure to such litigation for which no provision has been made in the accounts at balance date is: 414 837 - -
The Metcash Group is currently the subject of an income tax audit. To date, no adjustments to the Group’s income tax provisions have occurred as a result of this review and no specific provision has been made in these accounts. Note 27. Related Parties (a) Controlling Entity The ultimate controlling entity is Metro Cash and Carry Limited, a company incorporated in The Republic of South Africa. The immediate controlling entity is Soetensteeg 2-61 Exploitatiemaatschappij BV, a company incorporated in the Netherlands. (b) Directors and Director-related Entities The Directors named in the attached Directors’ Report each held office as a director of the Company during the entire financial year with the exception of Mr B Hale who was appointed on 8 November 2000. Sir L Hielscher held office until his retirement on 4 September 2000.
56 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 27. Related Parties (Continued) (i) Remuneration and retirement benefits
Remuneration paid, payable or otherwise made available to the Directors of entities in the economic entity and aggregate amounts paid in connection with the retirement of Directors of entities in the economic entity are disclosed in Note 24.
(ii) Equity Transactions with Directors and their Director-related entities
Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 The aggregate number of equity instruments held by Directors of the Company and the economic entity and their Director-related entities at balance date were: Ordinary Shares 350,000 679,000 350,000 679,000 Converting Preference Shares 362,500 583,500 362,500 583,500 Ordinary Share Options 4,000,000 4,000,000 4,000,000 4,000,000
Directors and Director-related entities received normal dividends on these ordinary shares and converting preference shares.
(iii) Directors’ Loans No loans were made to Directors, or entities affiliated with the Directors, by any entity within the economic entity, during the financial year.
(iv) Other Director Transactions Directors of the economic entity and Directors of its related parties, or their Director related entities, conduct transactions with entities, within the economic entity, that occur within a normal employee, customer or supplier relationship, on terms and conditions no more favourable than those with which it is reasonable to expect the entity would have adopted if dealing with the Director or Director related entity at arm’s length in similar circumstances.
(c) Transactions with entities in the Wholly Owned Group Metcash Trading Limited is the ultimate chief entity in the wholly owned group comprising the Company and its wholly owned controlled entities.
The Company advanced and repaid loans, received loans, received cash and paid trade creditors on behalf of entities in the wholly owned group during the current and previous financial periods. With the exception of the loans, which are interest free, these transactions were on normal terms and conditions.
57 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 27. Related Parties (Continued)
(d) Transactions with other related parties Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 The aggregate amounts recognised in respect of the following types of transactions and each class of related party involved were:
Transaction Type Class of other related party Provision of services to Controlled entities - - - 1,815
Purchases from Associates 18 2,168 - -
Sales to Associates - 4,059 - -
Management fees to Ultimate chief entity 350 350 350 350 Expenses paid to Ultimate chief entity 1,100 - - -
Loans advanced to Associates (i) - 906 - 906
All of the above transactions were made on commercial terms and at market rates except where indicated.
(i) Loans to associates are interest free (refer Note 7).
(e) Amounts receivable from and payable to entities in the wholly owned group and other related parties
Metcash Group Metcash Trading Limited 2001 2000 2001 2000 $’000 $’000 $’000 $’000 Aggregate amounts receivable at balance date from: Current Entities in the wholly owned group - - 311,936 331,079 Aggregate amounts payable at balance date to: Current Ultimate chief entity 899 - - -
Note 28. Subsequent Events The company announced in May 2001 that it would buy-back up to 40,000,000 Converting Preference Shares. At the date of preparing this report 22,150,798 have been purchased and cancelled for total consideration of $28,060,000.
58 METCASH ANNUAL REPORT 2001 Notes to the Financial Statements Year Ended 30 April 2001
Note 29. Additional Financial Instrument Disclosures
The economic entity’s exposure to interest rate risk, repricing maturities and the effective interest rates on financial instruments at balance date are as follows: Fixed Interest Rate Maturities Weighted Non Average Floating 1 Year or 1 to 5 Over 5 Interest Interest Rate Interest Rate Less Years Years Bearing Total 30 April 2001 % $’000 $’000 $’000 $’000 $’000 $’000 Assets Cash 4.00 17,567 - 17,567 Trade debtors 456,742 456,742 Other debtors 5.98 8,894 1,678 308 - 101,089 111,969 Investments 181 181 Total financial assets 26,461 1,678 308 - 558,012 586,459
Liabilities Trade creditors 597,117 597,117 Other creditors 59,006 59,006 Bank overdrafts 10.00 - - Securitisation finance 6.13 220,000 220,000 Lease liabilities 7.31 6,036 6,499 - 12,535 Other provisions 5,502 5,357 - 24,437 35,296 Total financial liabilities 220,000 11,538 11,856 - 680,560 923,954 Net financial assets (liabilities) (193,539) (9,860) (11,548) - (122,548) (337,495)
30 April 2000 Assets Cash 4.76 37,425 17,003 54,428 Trade debtors 431,254 431,254 Other debtors 37,629 37,629 Investments 932 932 Total financial assets 37,425 - - - 486,818 524,243
Liabilities Trade creditors 539,760 539,760 Other creditors 138,677 138,677 Bank overdrafts 9.00 - - Securitisation finance 5.99 235,000 235,000 Bills payable 5.99 1,400 1,400 Lease liabilities 8.17 12,068 9,925 210 22,203 Other provisions 7.00 11,094 8,442 - 12,181 31,717 Total financial liabilities 236,400 23,162 18,367 210 690,618 968,757 Net financial assets (liabilities) (198,975) (23,162) (18,367) (210) (203,800) (444,514)
59 METCASH ANNUAL REPORT 2001 Directors’ Declaration
Metcash Trading Limited and Controlled Entities ACN 000 031 569
Directors’ Declaration
In accordance with a resolution of the Directors of Metcash Trading Limited, in the opinion of the Directors:
(a) the financial statements and notes of the Company and of the consolidated entity are in accordance with the Corporations Law, including; (i) giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 April 2001 and of their performance for the year ended on that date; and (ii) complying with accounting standards and Corporations Regulations;
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
(c) 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 23 will be able to meet any obligations or liabilities to which they may become subject to, by virtue of the Deeds of Cross Guarantee.
For and on behalf of the board
Andrew Reitzer Director
Edwin Jankelowitz Director Sydney, 18 July 2001
60 METCASH ANNUAL REPORT 2001 Independent Audit Report
The Ernst & Young Building Tel 61 2 9248 5555 321 Kent St Fax 61 2 9248 6565 Sydney NSW 2000 DX Sydney Stock Australia Exchange 10172 Independent Audit Report GPO Box 2646 Sydney NSW 2001
To the members of Metcash Trading Limited
Audit Opinion We have audited the financial report of Metcash Trading Limited for the financial year ended 30 April 2001, as set out on pages 26 to 60, including the Directors’ Declaration. The financial report includes the financial statements of Metcash Trading Limited, and the consolidated financial statements of the consolidated entity comprising the company and the entities it controlled at year’s end or from time to time during the financial year. The company’s directors are responsible for the financial report. We have conducted an independent audit of the financial report in order to express an opinion on it to the members of the company.
Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial report is free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion whether, in all material respects, the financial report is presented fairly in accordance with Accounting Standards, other mandatory professional reporting requirements and statutory requirements in Australia, so as to present a view which is consistent with our under- standing of the company’s and the consolidated entity’s financial position and performance as represented by the results of their operations and their cash flows.
The audit opinion expressed in this report has been formed on the above basis.
Audit Opinion In our opinion, the financial report of Metcash Trading Limited is in accordance with:
(a) the Corporations Law including:
(i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 April 2001 and of their performance for the year ended on that date; and
(ii) complying with Accounting Standards and the Corporations Regulations; and
(b) other mandatory professional reporting requirements.
Ernst & Young
GG Daniels
Partner Liability limited by the Accountants Scheme, Sydney, approved under the Professional Standards Act 1994 (NSW) Date: 18 July 2001
61 METCASH ANNUAL REPORT 2001 Distribution of Shares – Ordinary Shares
Distributions of Shares - Ordinary Shares Information relating to shareholders as at 11 July 2001 Distribution of Shares Size of Holding No. of Shareholders 1 - 1,000 1,596 1,001 - 5,000 3,505 5,001 - 10,000 1,040 10,001 - 100,000 787 100,001 - over 70 6,998 Number of holdings of less than a marketable parcel 191
Top Twenty Shareholders Name No. of Shares % of Issued shares Soetensteeg 2-61 Exploitatiemaatschappij B V 365,914,338 75.43 Allind Pty Limited 34,267,379 7.06 Chase Manhattan Nominees Limited 6,925,089 1.43 ANZ Nominees Limited 6,173,724 1.27 Westpac Custodian Nominees Limited 3,333,338 0.69 Commonwealth Custodial Services Limited 3,227,099 0.67 National Nominees Limited 2,000,855 0.41 Berpaid Pty Limited 1,950,000 0.40 Citicorp Nominees Pty Limited 1,627,895 0.34 Removale Pty Limited 1,573,474 0.32 Academic Growth Institute Fund Pty Limited 995,574 0.21 TJT Nominees Pty Limited 881,149 0.18 MLP Nominees Pty Limited 750,000 0.15 JKM Queensland Investments Pty Limited 600,000 0.12 HSBC Custody Nominees (Australia) Limited 552,000 0.11 Transport Accident Commission 542,531 0.11 Government Superannuation Office 516,975 0.11 Victorian Workcover Authority 505,884 0.10 Soon Fatt Chia 500,000 0.10 Mr Kwan Hung Yuen & Mrs Sze Mui Chan Yuen 500,000 0.10 433,337,304 89.31
Substantial Shareholders The following is extracted from the Company’s register of substantial shareholders: No. of Shares Soetensteeg 2-61 Exploitatiemaatschappij B V 365,914,338 Allind Pty Limited 34,267,379
Voting Rights of Ordinary Shares The holders of ordinary shares in the Company are entitled at any General Meeting, either in person or by proxy, on a show of hands, to one vote, and on a poll to one vote for each fully paid share.
62 METCASH ANNUAL REPORT 2001 Distribution of Shares – Converting Preference Shaners
Distributions of Shares - Converting Preference Shares Information relating to shareholders as at 11 July 2001
Distribution of Shares Size of Holding No. of Shareholders 1 - 1,000 263 1,001 - 5,000 1,420 5,001 - 10,000 1,088 10,001 - 100,000 1,314 100,001 - over 89 4,174 Number of holdings of less than a marketable parcel 9
Top Twenty Shareholders Name No. of Shares % of Issued shares Chase Manhattan Nominees Limited 13,802,134 10.65 JP Morgan Cutodial Services Pty Limited 5,089,827 3.93 National Nominees Limited 4,910,193 3.79 AMP Life Limited 4,245,013 3.28 ANZ Nominees Limited 4,203,497 3.24 Invia Custodian Pty Limited 3,937,877 3.04 Westpac Custodian Nominess Limited 3,907,901 3.02 Perpetual Trustee Company Limited 3,275,414 2.53 Soetensteeg 2-61 Exploitatiemaatschappij B V 3,000,000 2.31 JP Morgan Custodial Services Pty Limited 2,330,730 1.80 McNeil Nominees Pty Limited 2,235,700 1.72 Citicorp Nominees Pty Limited 2,072,304 1.60 Cogent Nominees Pty Limited 1,643,932 1.27 CSFB Second Nominees Pty Limited 1,450,000 1.12 Draycott Pty Ltd 1,230,340 0.95 Brispot Nominees Pty Limited 824,320 0.64 AM Trusteeship Services Limited 814,892 0.63 Commonwealth Custodial Services Limited 811,000 0.63 Permanent Trustee Australia Limited 778,624 0.60 Tower Trust Limited 698,532 0.54 61,262,230 47.29
Voting Rights of Converting Preference Shares The holders of converting preference shares in the Company are not entitled to vote at any general meeting except: • if, at the time of any such meeting, a CPS dividend is in arrears for more than 20 ASX business days; • on any proposal to reduce the share capital of the Company; • on any proposal to approve the terms of a buy back agreement; • on any proposal directly affecting the rights and privileges attaching to the CPS; • on any proposal for winding up the Company; • on any proposal for the disposal of the whole of Metcash ’ property, business or undertaking; or • during the winding up of the Company, in which case a CPS shareholder has the same rights, as to voting in respect of each CPS, as those conferred on an ordinary shareholder in respect of each ordinary share.
63 METCASH ANNUAL REPORT 2001 Company Directory
Directors C.S. dos Santos - Non-Executive Chairman A.E. Harris - Non-Executive Deputy Chairman A. Reitzer - Chief Executive Officer M.R. Jablonski - Merchandise Director E.M. Jankelowitz - Finance Director B.J. Hale - Non-Executive V.D. Rubin - Non-Executive R.A. Longes - Non-Executive P.L Barnes - Non-Executive
Company Secretary J.A. Randall
Registered Office 4 Newington Road Silverwater NSW 2128 Telephone: 61 2 9741 3000 Facsimile: 61 2 9741 3300
Auditors Ernst & Young 321 Kent Street Sydney NSW 2000
Share Registry Computershare Investor Services Pty Ltd GPO Box 7045 Sydney NSW 1115 Telephone: 61 2 8234 5222 Facsimile: 61 2 8234 5050
Stock Exchange Listing Metcash Trading Limited shares are quoted on the Australian Stock Exchange
Annual General Meeting The eighth Annual General Meeting will be held at 2.30pm on Monday, 3 September 2001 at the Heritage Ballroom, Westin Hotel, No. 1 Martin Place, Sydney.
64 METCASH ANNUAL REPORT 2001