Coles Group Limited 2022 Annual Report
A
Coles Group Limited
ABN 11 004 089 936
2022 Annual Report
Our vision is to become the most trusted retailer in
Australia and grow long-term shareholder value
Coles Group Limited 2022 Annual Report
1
Welcome to the
Coles Group
2022 Annual Report
Contents
Overview
2022 performance 4
2022 highlights 5
Message from the Chairman 6
Managing Director and
Chief Executive Officer’s report 8
Our vision, purpose and strategy 12
How we create value 14
Sustainability at Coles 17
Governance at Coles 20
Operating and Financial Review 24
Board of Directors: Biographical Details 59
Directors’ Report 61
Remuneration Report 65
Financial Report 85
Independent Auditor’s Report 131
Shareholder Information 137
Corporate Directory 139
Acknowledgment of Country
Coles Group acknowledges the Traditional Owners and Custodians
of the lands on which we live and operate. We pay our respects to
Elders past, present and emerging and acknowledge their
continuing connection to waters, skies, seas and country.
Coles Group endorses the Uluru Statement from the Heart and its
objectives to enshrine a First Nations Voice in the Australian
Constitution. Supporting the Uluru Statement from the Heart
reflects our commitment to our Aboriginal and Torres Strait
Islander Plan and Better Together Strategy.
Coles Group has long supported elevating the voices of Aboriginal
and Torres Strait Islander peoples, and we believe this structural
reform and constitutional change is a significant step forward in
creating lasting reconciliation in Australia.
Aboriginal and Torres Strait Islander peoples are advised that this
report may contain names and images of people who are
deceased.
All references to Indigenous and First Nations peoples in this
report are intended to include Aboriginal and/or Torres Strait
Islander peoples.
Forward-looking statements
This report contains forward-looking statements in relation to
Coles Limited Group (‘the Company’) and its controlled entities
(together ‘Coles’, Coles Group’, or ‘the Group’), including
statements regarding the Group’s intent, belief, goals, objectives,
opinions, initiatives, commitments or current expectations with
respect to the Group’s business and operations, market
conditions, results of operations and financial conditions, and
risk management practices. This report also includes forwardlooking statements regarding climate change and other
environmental and energy transition scenarios. Forward-looking
statements can generally be identified by the use of words such as
‘forecast’, ‘estimate’, ‘plan’, ‘will’, ‘anticipate’, ‘may’, ‘believe’,
‘should’, ‘expect’, ‘intend’, ‘outlook’, ‘guidance’ and other similar
expressions.
Any forward-looking statements are based on the Group’s current
knowledge and assumptions, including with respect to financial,
market, risk, regulatory and other relevant environments that will
exist and affect the Group’s business and operations in the future.
The Group does not give any assurance that the assumptions will
prove to be correct. The forward-looking statements involve
known and unknown risks, uncertainties and assumptions, that
could cause the actual results, performances or achievements of
the Group to be materially different from the relevant statements.
There are also limitations with respect to scenario analysis, and it
is difficult to predict which, if any, of the scenarios might
eventuate. Scenario analysis is not an indication of probable
outcomes and relies on assumptions that may or may not prove to
be correct or eventuate.
Readers are cautioned not to place undue reliance on forwardlooking statements. Except as required by applicable laws or
regulations, the Group does not undertake to publicly update,
review or revise any of the forward-looking statements or to
advise of any change in assumptions on which any such statement
is based. Past performance cannot be relied on as a guide to
future performance.
Non-IFRS information
This report contains IFRS and non-IFRS financial information.
IFRS financial information is financial information that is
presented in accordance with all relevant accounting standards.
Non-IFRS financial information is financial information that is
presented other than in accordance with relevant accounting
standards and may not be directly comparable with other
companies’ information.
Any non-IFRS financial information included in this report has
been labelled to differentiate it from statutory or IFRS financial
information. Non-IFRS measures are used by management to
assess and monitor business performance at the Group and
segment level and should be considered in addition to, and not as
a substitute for, IFRS information. Operating metrics that are
prepared on a non-IFRS basis have been included in the segment
commentary to support an understanding of comparable
business performance. Non-IFRS information is not subject to
audit or review.
Cover image
Coles chefs Michael Weldon and Courtney Roulston with a selection of exclusive Coles Own Brand products.
Coles Group Limited 2022 Annual Report
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Coles Group Limited 2022 Annual Report
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Our purpose is to
sustainably help
all Australians
to lead healthier,
happier lives.
Coles meat team member Maria at Delatite Station near Mansfield with Mark Ritchie who produces cattle for Coles’ carbon neutral beef range.
Coles Group Limited 2022 Annual Report
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Coles Group Limited 2022 Annual Report
2022
performance
$1.9bn
EBIT1
$39.4bn
Total sales revenue
63c
Dividends per share4
~$230m
Smarter Selling benefits
104%
Cash realisation3
14.7%
Improvement in
total recordable injury
frequency rate6
$1.2bn
Gross operating capex5
$506m
Net debt2
4.3%
Net profit afer tax growth
1 Includes approximately $30 million of implementation operating costs in relation to the Witron and Ocado transformation projects ($7 million in FY21)
2 Net debt pre-dividend payment
3 Cash realisation is calculated as operating cash flow excluding interest and tax, divided by EBITDA
4 Comprising an interim dividend of 33 cents per share (paid) and a final dividend of 30 cents per share
5 Gross operating capital expenditure on an accrued basis
6 Refer to glossary of terms on page 39 for definition
2022
highlights
39.4%
Women in leadership positions
50
Supermarket and
208
Liquor store renewals
>420
Exclusive Liquor Brand
awards received
Innovation through launch of
>1,300
Coles Own Brand products
Secured pathway to
100%
renewable electricity
by end of FY25
Trolley assisted checkouts
rolled out to more than
100 stores
Provided more than
$142m
in community support
Significant progress on
Witron & Ocado
transformation projects
Increase in Supermarkets
eCommerce sales
41%
Overview Operating and Financial Review Directors’ Report Remuneration Report Financial Report Shareholder Information
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Message from
the Chairman
SecondBite Ambassador and Board Director Matt Preston (lef), SecondBite co-founder Simone Carson AM (middle) and SecondBite Ambassador and Coles Chef
Ambassador Courtney Roulston (right) celebrate the 10th anniversary of Coles’ partnership with SecondBite.
Dear Shareholder,
The 2022 financial year proved to be our third consecutive year
marked by challenging domestic and international events.
Pleasingly, we were able to adapt our operations to respond to the
impacts of COVID-19, severe floods, increasing prices of
commodities and global supply chain disruptions to achieve a
4.3% increase in our net profit afer tax, with a 2.0% increase in
sales revenue and a strong focus on cost optimisation strategies.
As a result, fully franked dividends for the year increased by 2.0
cents per share to 63.0 cents per share, in line with our policy
which targets an 80 to 90 per cent dividend payout ratio.
New capital investment of $1.2 billion ensured that we not only
continued to develop and renew our store portfolio but also
undertook investment in new systems and equipment as well as
in our important long-term automation projects in partnership
with Witron and Ocado. The planning for these latter two projects
commenced many years ago with their contractual
commencements in 2018 (Witron) and 2019 (Ocado).
In the case of the Witron project, two new ambient automated
distribution centres are being constructed in Queensland and
New South Wales, and we expect to see commissioning of these in
the third quarter of our 2023 financial year and the third quarter of
our 2024 financial year, respectively. These two facilities, with an
anticipated total capital cost of $1,040 million over the four and a
half year construction period, will replace five of our distribution
centres and significantly improve efficiency, delivery to market
and team member safety.
The two customer fulfilment centres in New South Wales and
Victoria being constructed under our partnership with the globally
leading online grocery company, Ocado, will significantly extend
our home delivery eCommerce operations in both Supermarkets
and Liquor. Using the Ocado Smart Platform we expect to offer a
significantly expanded range with enhanced levels of customer
satisfaction. We anticipate the commissioning of the New South
Wales facility in the first quarter of our 2024 financial year and the
Victorian facility mid that financial year.
Since the date of our demerger in 2018, we have placed significant
emphasis upon the role of technology and new capital investment
in growing and strengthening the Group’s operations. These
initiatives are important in ensuring that we are well placed to
efficiently and competitively meet our aims of building trust with
all stakeholders as we grow long term value. To that end, we
actively manage all new capital allocations to meet our strategic
priorities and deliver attractive returns over the long term.
In that context, I note the announcement made on 21 September,
2022 that Coles has entered into an agreement, subject to the
approval of the Australian Competition and Consumer
Commission and the Foreign Investment Review Board, to sell the
Coles Express fuel and convenience business to our fuel partner
Viva Energy Limited and will receive sale proceeds of $300 million.
Completion of the transaction is expected to take place in the
second half of the current financial year and will result in the
transfer of the leases associated with our more than 700 Coles
Express sites. Coles’ customers will continue to enjoy the loyalty
benefits of the four cents per litre fuel dockets and the earning
and redeeming of Flybuys points across the Coles Express
network.
Across all of our Supermarket, Liquor and Coles Express
operations the support of our more than 120,000 team members
throughout the year has underpinned our ability to respond to
evolving market conditions and opportunities, with a constant
focus upon meeting our customers’ requirements and delivering
trusted value. To each of our team members and to our more than
8,000 supplier partners I extend a special thanks for the
commitment which has been so evident during the challenges of
2021/22. Working together in harmony has been a very positive
feature of the year.
Part of the privilege of Coles is the opportunity to engage with
nearly all Australians, directly or indirectly. Our ability to work
with our team members, customers, suppliers and community
partners has meant that Coles has been able to continue to
support a wide range of community organisations through the
2022 financial year.
During the year these engagements have included our established
partnerships with SecondBite and Foodbank where we were able
to provide more than 37.5 million meal equivalents to Australians
in need as together we supported the efforts of thousands of
front-line charities across the country; our support for FightMND
saw the raising of more than $8.6 million for research into finding
effective treatments and a cure for Motor Neurone Disease, in
partnership with our customers and pork suppliers; our
partnership with Redkite saw a further $4.1 million raised for
families who are living with children with cancer; and our provision
of pallets of food together with direct financial support to
customers, suppliers and communities impacted by the floods in
Queensland and New South Wales in early 2022.
Being a major Australian listed company also provides the
opportunity to take leadership positions on important
environmental and social impact issues. In that regard we have
set ambitious targets to reduce emissions, reduce waste, reduce
the impact of packaging, and to ensure that we are a significant
employer of Aboriginal and Torres Strait Islanders. The scope and
importance of these and other commitments are set out in detail
in our 2022 Sustainability Report.
As part of the operating rhythm of your Board we annually review
our own performance and engagement in the governance of
Coles. The Board operates constructively in support of Steven
Cain and the management team and regularly assesses its skill
mix and future needs. In that regard, in September 2022 we
announced the appointment of two new Directors – Terry Bowen
and Scott Price.
Terry Bowen is a well recognised Australian public company
director with extensive commercial and financial experience
including having been Finance Director of Coles for a two-year
period some 15 years ago. Scott Price is a globally experienced
executive who has held leadership roles at UPS Inc., Wal-Mart Inc.,
DHL Express, and The Coca-Cola Company and whose retailing,
eCommerce and logistics experience will be of significant value.
Both Terry and Scott will stand for election at our Annual General
Meeting in November 2022.
I would like to extend my thanks to all Coles Group Board
members, to our Chief Executive Steven Cain, and to his leadership
team for the uncompromising commitment to Coles each of them
has demonstrated throughout the year. It has been a year of
significant progress.
James Graham AM
Chairman,
Coles Group Limited
Our ability to work with our team members, customers, suppliers
and community partners has meant that Coles has been able to continue
to support a wide range of community organisations throughout the
2022 financial year.
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Managing Director and
Chief Executive Officer’s report
In delivering the third year of our transformation strategy, we have
continued to focus on our vision to be the most trusted retailer in Australia
and grow long-term shareholder value.
Coles is now one of Australia’s most trusted brands (as measured
by Roy Morgan) and over the last 3 years we have achieved upper
quartile TSR compared to the ASX 100.
Back in 2019 we said we wanted to maintain or grow our market
share – profitably. That remains the case. COVID restrictions and
flood related availability issues have driven “local shopping”
trends. We expect that these will unwind as availability improves
and value becomes more important to Australian consumers.
Coles will also benefit from an increasing net new store opening
profile as well as the expected reduced processing times for circa
900,000 people waiting for visas into Australia, and the skilled
migration program set to increase.
We have set out five differentiators and we continue to make
progress. A good strategy around differentiation needs to be
executed at pace to be successful. Pace can only be achieved
through a strong culture of engaged team members which is why
engagement and safety are important parts of our scorecards.
Our eCommerce revenues across the Group rose by 42% in FY22 to
approximately $3 billion with Supermarkets eCommerce sales
increasing by 41% and Liquor eCommerce sales increasing by
49%, as we continue to invest in digital capability and operational
capacity.
With regards to customer loyalty and data, our Flybuys 50/50 joint
venture with the Wesfarmers Retail Group now has access to 20%
of all retail expenditure in Australia following the inclusion of
Bunnings and Officeworks.
Our Smarter Selling program is on track to deliver $1 billion of
benefits under our four-year program, by the end of FY23 to
mitigate inflationary pressures and enable us to invest in our
digital and automation future. Plans for Smarter Selling 2 are now
being developed.
Since our demerger back in 2018 we have increased capital
investment in Coles Group. The good news is that the majority of
the benefits of this investment are still to come. Within two years
we will have four of the most advanced distribution facilities in
Australia, thanks to our partnerships with Witron and Ocado,
suppliers of the best and some of the largest automated food
distribution centres and online customer fulfilment centres in the
world respectively.
These facilities will bring about a step-change in our supply chain
efficiency and customer offer.
As we move forward we endeavour to make long-term decisions
that are in the best interests of all our stakeholders including
shareholders, customers, team members, suppliers, and our
community partners.
From response to recovery in FY22
Our team members, customers, suppliers and our communities
faced a number of significant challenges and disruptions this year.
The first half was marked by extended lockdowns in New South
Wales, the Australian Capital Territory and Victoria, which lifed
supermarket sales despite some customers shopping at local
retailers due to movement restrictions.
Sales growth remained elevated through Christmas as restrictions
eased and shoppers returned to shopping centres, however with
the rise of Omicron case numbers in the second half, large
numbers of workers including Coles team members and suppliers
were required to isolate, impacting product availability across the
store, particularly in meat.
The second half saw widespread flooding in South Australia, New
South Wales and Queensland which not only disrupted logistics
but also forced us to temporarily close around 30 Supermarkets,
66 Liquor stores and 30 Express sites. The floods in South Australia
then caused record closures of road and rail from the East Coast
to Western Australia with Coles deploying marine shipping from
Sydney and Melbourne to Perth for the first time. Supply chain
issues were then exacerbated by the conflict in Ukraine impacting
global commodity markets and energy prices.
Weather events also impacted our farmers, with wet conditions
disrupting normal planting schedules and reducing yields,
decreasing availability of key fresh produce lines and raising
wholesale costs which in turn drove inflation for some products.
For Liquor, the closure of on-premise venues in New South Wales,
the Australian Capital Territory and Victoria led to increased sales
in the first half, however this trend eased over the year as
customers were again able to visit on-premise venues. Lockdowns
during the first half led to reduced fuel volumes at Express, which
recovered modestly in the second half as flooding coincided with
higher global fuel prices.
I would like to acknowledge and thank our more than 120,000
team members, our 8,000 plus suppliers and our community
partners for their continued efforts to overcome the challenges
the year presented.
As we approached year end we saw continuous improvement in
our availability which will serve us well in the year ahead.
Progress against our three strategic pillars in FY22 was as follows.
Inspire customers
Our plan to inspire customers this year included our ‘Value the
Australian Way’ campaigns, the KitchenAid Ovenware and
MasterChef Knives continuity programs, and the launch of more
than 1,300 new Coles Own Brand products to bring our Exclusive
to Coles range to almost 6,000 SKUs.
As customers increasingly look for solutions that allow them to
shop anytime, anywhere, anyhow, we launched our new Coles
shoppable App to provide a more unified shopping experience,
expanded Click & Collect Rapid by 50 stores to more than 450, and
added same-day delivery to over 200, so that more than 520 had
this capacity by the end of the year.
We continued to differentiate our Liquor offer through innovation,
with customers responding positively to our local ranging and
strong growth in our Exclusive Liquor Brands, underpinned by
more than 420 awards received during the year including ELB
brand Smithy’s winning the Australian Lager of the Year at the
Melbourne International Beer Competition. As more of our
customers opted to shop online, the Liquor delivery On Demand
service was expanded to more than 400 stores.
Coles Group CEO Steven Cain with Get Skilled Access founder and Australian of the Year Dylan Alcott AO, Get Skilled Access consultant Stephanie Agnew, then Federal
Minister for Families and Social Services Senator Anne Ruston and former local MP Dr Katie Allen in March 2022 at the launch of the RecruitAble pilot program which
aims to support employers to create more job opportunities and inclusive workplaces for Australians who are living with disability.
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Coles Group Limited 2022 Annual Report
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Smarter selling
Increased COVID-19-related costs of approximately $240 million
(up from $130 million in FY21) were offset by approximately
$230 million in savings from our Smarter Selling program, which is
on track to deliver our target of $1 billion in cumulative benefits by
FY23.
During the year we expanded dynamic markdowns from meat to
the fresh produce and dairy categories, rolled out loss prevention
initiatives with more than 80% of stores now protected with entry
gates and glass balustrading, and aligned our meat operating
models nationally to deliver high quality retail ready meat for
customers.
To provide our customers with more choice in how they shop in
store while improving team member productivity, we have
continued to transform our service offering with more trolley
assisted check outs and customer bagging benches. We
streamlined our distribution centre operations by introducing
automated paperless entry and exit processes for 45,000 supplier
vehicles, and reduced our energy use through the installation of
demand-based heating, ventilation and air-conditioning as well
as energy efficient LED lights across the Coles Express network.
We continued to tailor store formats to better suit the needs of
customers, renewing 50 Supermarkets including 12 Format A, 22
Format C, and six Coles Local stores. In Liquor, 191 Liquorland
stores were renewed in our new Black and White format, while
eight First Choice Liquor Market and nine Vintage Cellar Evolution
stores were also renewed.
Win together
Less than a year afer announcing our detailed Sustainability
Strategy, during the first half Coles was ranked the number two
food retailer globally for sustainable business practices in the
World Benchmarking Alliance’s 2021 Food and Agriculture
Benchmark.
It was a welcome recognition of the rapid progress we have made
towards our ambition to be Australia’s most sustainable
supermarket, which this year includes securing sufficient
renewable energy contracts to meet our goal of 100% renewable
electricity by end of FY25, as well as a $10 million commitment
over 10 years to our ‘Blue Carbon Partnership’ with the Great
Barrier Reef Foundation to support programs to capture and store
atmospheric carbon in marine ecosystems.
We have continued to record improvements in team member
safety and engagement, with a 14.7% reduction in our total
recordable injury frequency rate compared to FY21 and a three
percentage point gain in overall engagement in our mysay team
member survey.
Supporting and celebrating the diversity of our team members is
core to who we are as a business, and so it was very pleasing to be
recognised as a Gold tiered employer for the second year in a row
at the 2022 Australian LGBTQ Inclusion Awards, based off the
Australian Workplace Equality Index, as well as by the Australian
Network on Disability as a top employer for people with disability
at the 2022 Disability Confidence Awards. Our graduate program
was again awarded the best in Australian retail and FMCG.
Importantly in a year in which our suppliers were also facing
supply chain challenges and higher input costs, we recorded our
highest-ever Net Favourable score in our Advantage Supplier
Survey. Coles’ focus on innovating with our suppliers saw us
launch the Coles Finest Certified Carbon Neutral Beef range, while
Liquor launched a range of wines in bottles made from 100%
Australian recycled PET plastic (excluding the cap), reducing
carbon emissions and saving energy in production and recycling.
With the communities we serve needing more support than ever,
Coles was ranked number one for community contribution by an
Australian company in the GivingLarge corporate philanthropy
report, measured as a percentage of pre-tax profit over a threeyear period.
Our financial position
Despite challenges including significant COVID-19 costs, the impact
of flooding, transformation project costs, and lower Express
earnings, Coles again demonstrated its ability to generate
sustainable returns, with stable EBITDA and EBIT of $3,440 million
and $1,869 million respectively and NPAT up 4.3% to $1,048 million.
During the first half we established a $1.3 billion, four-year
Sustainability Linked Loan, replacing existing debt commitments
and drawing a direct line between our sustainability performance
and cost of capital as we work to fulfil our ambition to be Australia’s
most sustainable supermarket.
We remain committed to maintaining solid investment grade
credit ratings with S&P and Moody’s, which provides us with the
flexibility to invest for growth.
Looking ahead
In September, we announced the sale of our fuel and convenience
business to Viva Energy so that we can focus on our omnichannel
food and drink, and sustainability ambitions. Coles customers will
continue to benefit from fuel discount vouchers and Flybuys
points. I would like to thank the Coles Express team for their
significant contribution to Coles Group over the last 19 years
culminating in us receiving the Canstar industry award this year.
The transaction is due to complete in the second half of the
current financial year subject to regulatory approval.
In an environment of continued cost of living pressures, Coles
remains committed to delivering trusted value. By continuing to
drive efficiencies through our Smarter Selling program, we can
ensure that we are able to maintain a great value offer for
customers while growing long term shareholder value.
I would like to thank our customers for choosing Coles and for the
patience they have shown while we navigated the availability
challenges of the past year, our team members for their dedication
and support of each other and our communities, our Board for
their informed and considered guidance and our leadership team
for their tireless enthusiasm for sustainably helping all Australians
to lead healthier, happier lives.
Steven Cain
Managing Director and Chief Executive Officer
Coles Group Limited
Top: Coles Own Brand General Manager Charlotte Rhodes (lef), Coles Dairy, Freezer and Convenience General Manager Brad Gorman (right) and Phil Horan from
Sawmill Circuit in NSW with the Alley Vac which was purchased with a grant from the Coles Nurture Fund. The Alley Vac will collect effluent from dairy farms in the
Nowra region and transport it to a biogas plant to be converted into electricity.
Bottom: For the third year running Coles has been recognised as GradConnection’s Most Popular Retail and Fast-Moving Consumer Goods Employer. Pictured above
are Jhoana and Jack who completed Coles’ graduate program and now have permanent roles at Coles.
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Coles Group Limited 2022 Annual Report
Our purpose
is to sustainably help
all Australians lead
healthier, happier lives.
Inspire customers
through best value
solutions in food,
drink and home.
Smarter selling
through efficiency
and innovation.
Win together
with our team, suppliers
and communities.
Our vision
is to become the most trusted retailer in
Australia and grow long-term shareholder value.
Our vision, purpose
and strategy
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Our values. Our behaviours.
Win Together
Smarter selling
Inspire customers
• Trusted value through personalisation
• Exclusive brands powerhouse
• Leading anytime, anywhere, anyhow shopping
• Destination for health, sustainability and convenience
• Expanded offer through new markets and services
• Technology- and digitally-empowered organisation
• Strategic and sustainable sourcing
• Optimised network and formats
• Agile Store Support Centre using data driven insights
• Safer choices together
• Great place to work
• Better Together through diversity and community
• Together to Zero to drive generational sustainability
• Growth through partnership
Win together
Smarter selling
Inspire customers
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Retail and
store network
Our extensive retail and store network
stretches across Australia.
Key issues
• Health, safety and wellbeing
• Waste and circular economy
• Food waste
• Food and product quality and safety
Team
members
We rely on more than 120,000 team
members to help us deliver on our
sustainability ambitions.
Key issues
• Health, safety and wellbeing
• Waste and circular economy
• Food waste
• Diversity and equal opportunity
Customers and
community
We process an average of $18 million
transactions each week across our
extensive store network and eCommerce
platforms.
Key issues
• Sustainable packaging
• Responsible sourcing
• Waste and circular economy
• Food waste
Australian farmers
and growers
We rely on Australian farmers and growers
to supply the products we sell in our
stores.
Key issues
• Climate resilience
• Food waste
• Human rights and ethical sourcing
• Animal welfare
Suppliers, processors
and packaging
We have thousands of supply partners who
provide the products we sell in our stores
and whose services and other products
support our business operations.
Key issues
• Sustainable packaging
• Waste and circular economy
• Energy and emissions
• Responsible sourcing
Transport and
distribution
We depend on our logistics partners
and our own distribution network to move
and store products, keeping them fresh
and safe.
Key issues
• Waste and circular economy
• Climate resilience
• Energy and emissions
• Food and product quality and safety
Our sustainability performance
Our economic value creation3,4
The two focus areas of our Sustainability Strategy –
Together to Zero and Better Together –
set out our ambitions across key sustainability
areas and help drive our performance.
Suppliers
$31bn+
suppliers and
services spend
Team members
$5.1bn
payments and benefits
to team members
Shareholders
$814m
total dividends paid
Governments
$2.3bn
Cash taxes paid
and collected
Community
$142m
community support4
Safer choices together
| 14.7% improvement in TRIFR5 |
| 1,000+ store leaders participated in mental health training |
| 91 Coles Own Brand products acknowledged with awards and recognitions |
Great place to work
| ↑3pp team member engagement (mysay) results compared to FY21 |
| 74% of mysay respondents say mental health support was readily available |
| 3rd consecutive year recognised as GradConnection’s Most Popular Retail and Fast Moving Consumer Goods Employer |
Together to zero
| 2.8% reduction in Scope 1 and 2 greenhouse gas emissions |
| 82.5% solid waste diverted from landfill |
| 37.5m equivalent meals donated to Secondbite and Foodbank |
Better together
| 39.4% women in leadership positions |
| $1.8m in Coles Nurture Fund grants |
| Broadest range of RSPCA Approved products2 |
How we create value
To achieve our strategy, we need to successfully manage the
environmental, social and governance risks and opportunities1
in our operating environment and across our value chain.
1 We undertake an annual materiality assessment to identify key environmental, social and governance (ESG) risks and opportunities. For further information refer to
our 2022 Sustainability Report.
2 Of any major Australian supermarket
3 For the 52 weeks ended 26 June 2022.
4 Includes Coles’ direct contribution of cash, time, in-kind donations and management costs as well as donations from customers, suppliers and team members. Coles
references the Business for Societal Impact framework for reporting community contributions.
5 Total recordable injury frequency rate (TRIFR). Refer to the glossary on page 39.
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Coles Group Limited 2022 Annual Report
Sustainability at Coles
This year we have been working towards the commitments we set when we
launched our refreshed Sustainability Strategy in FY21, with efforts focused on
our two strategic pillars of Together to Zero and Better Together.
Over the past year, sustainability considerations have been
embedded in our corporate strategy as we work towards integrating
sustainability across our operations. We understand that if we want
to succeed in the next century, business as usual will not suffice. Our
stakeholders – including customers, shareholders, team members
and suppliers – tell us sustainability matters to them. Carbon
emissions, packaging, waste, employee safety and wellbeing,
human rights, and animal welfare are some of the issues they care
about most and expect Coles to be making a positive impact on. We
know many of these issues are complex and cannot be solved by us
alone and so we are committed to working in partnership with
others to find solutions and create change for generations ahead.
A snapshot of our performance during the year is discussed in the
following pages, with detailed information on progress against
our Sustainability Strategy in our 2022 Sustainability Report.
Together to Zero
Together to zero emissions
As one of Australia’s largest companies, we have a responsibility to
minimise our environmental footprint, as well as to mitigate the
social and environmental impacts associated with climate change.
Coles is a significant energy user and producer of greenhouse gas
emissions, both directly in our own operations and indirectly
through our extensive supply chains.
We are continuing to work towards reducing emissions in our own
operations and this year signed the last of the agreements needed
to meet our target of 100% renewable electricity by FY25. We have
also invested in energy efficiency measures and refrigeration
management programs throughout our stores and trialled our first
electric delivery truck earlier this year.
For further information on how Coles is managing the risks and
opportunities associated with climate change, see pages 51-57.
Together to zero waste
We recognise the role we can play in reducing food waste and
packaging, responding to stakeholders’ concerns with respect to
these issues, while also making our operations more sustainable
and efficient. Together with industry partners, suppliers and
customers we are seeking to reduce waste, increase food security
and drive the transition to a circular economy.
Coles is aligned with Australia’s 2025 National Packaging Targets
and 94.6% of Coles Own Brand and Coles Liquor Own Brand
packaging in Australia is now 100% recyclable, reusable or
compostable (up from 87% at end FY21). This year we diverted
82.5% of the Group’s solid waste from landfill (against a target of
85% by end of FY25), up from 80.6% at end FY21.1 While we
acknowledge this is a modest year-on-year increase, in large part
this was due to the impacts of flooding in the eastern states of
Australia which disrupted recycling services.
Pictured are FightMND founder and AFL legend Neale Daniher (back row, second from right) with his daughter and FightMND campaign director Bec Daniher
(middle), FightMND CEO Dr Fiona McIntosh (back row, third from lef), Coles Chief Operations and Sustainability Officer Matt Swindells (back row, far right),
Coles General Manager Meat Martin Smithson (back row, lef) and Coles team members.
1 Excludes liquid waste except high-strength sludges (which contain a high proportion of solids) and liquids diverted for use as food (such as donations to SecondBite
and farmers).
Together to zero emissions
Together to zero waste
Together to zero hunger
A team that is better together
A community that is better together
Sourcing that is better together
Farming that is better together
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Together to zero hunger
Our focus on Together to zero hunger encompasses our
commitment to donate unsold, edible food to food rescue
organisations. Coles and food rescue organisation SecondBite
have been working together since 2011 in the fight against hunger
and food waste. Since the partnership began, Coles has provided
SecondBite with the equivalent of 185.3 million meals2 to be
distributed to people in need.
We have also been working with Foodbank, Australia’s largest
food relief organisation, providing the equivalent of 37.7 million
meals3 since the partnership began in 2003. The food we provide
to Foodbank supports 2,950 agencies and community groups.
Better Together
A team that is better together
We have performance improvement targets against each of the
five focus areas of our diversity and inclusion program: Belonging,
Gender Equity, Indigenous engagement, Accessibility, and Pride.
We are continuing to build gender balance in leadership roles at
Coles, achieving our largest single year increase in FY22, from
36.5% to 39.4%.
Our commitment to engage with Aboriginal and/or Torres Strait
Islander peoples to better reflect the communities in which we
live and work is outlined in our Aboriginal and Torres Strait
Islander Plan (available at www.colesgroup.com.au). We remain
focused on increasing Aboriginal and Torres Strait Islander
representation within our workforce, with representation
currently at 3.2%4. We do acknowledge reaching our target of 5%
team members who identify as Aboriginal or Torres Strait Islander
by December 2023 will be a challenge. However currently 84.1% of
Coles Supermarkets employ Indigenous team members, and this
is something we remain focused on building.
During the year, Coles’ leadership in LGBTQI+ was recognised as a
Gold tiered employer at the 2022 Australian Workplace Equality
LGBTQ Inclusion Awards.
A community that is better together
At Coles, we believe we can make a positive difference in the
community and help people in need by working together with
community organisations through partnerships, sponsorships
and fundraising.
Together with our customers, suppliers and team members, Coles
Group contributed $142 million5 to the community in FY22.
Our community support included more than $12 million in cash
contributions to charities and community organisations in FY22
through the sale of:
• Coles Own Brand bread for Redkite to support families affected
by childhood cancer;
• Coles Own Brand fresh pork for FightMND to help find a cure for
Motor Neurone Disease;
• Mum’s Sause pasta and pizza sauce for Curing Homesickness
Ltd – an initiative supporting chilidren’s hospital foundations
and paediatric services across Australia;
• Coles Bakery biscuits and cookies for Bravery Trust in the lead
up to Anzac Day to support injured veterans facing financial
hardship; and
• reusable bags to support a range of community organisations
including Clean Up Australia.
In addition, Coles’ customers, suppliers and team members
contributed more than $22 million from activities such as in-store
fundraising for SecondBite, Redkite, Movember, the Australian
Red Cross Queensland and NSW Floods Appeal and children’s
hospital foundations.
Fundraising highlights for Coles Group in FY22 included:
• raising $4.1 million in our supermarkets and liquor stores for
SecondBite to help provide food to people in need;
• raising a record $8.6 million for FightMND in supermarkets and
Coles Express to help find a cure for Motor Neurone Disease;
• raising more than $1 million for Guide Dogs Australia from
collection dogs in our stores and from the sale of reusable
bags; and
• reaching a milestone of $5 million raised in three years for
Curing Homesickness Ltd to help sick children in hospitals
across Australia.
Supporting communities affected by natural disasters
Coles and its team members also responded quickly to support
communities affected by natural disasters.
In March 2022, our local store teams and customers donated
supplies and funds to provide immediate and long-term support
to flood-affected communities in New South Wales and southern
Queensland.
Together with our customers, we donated and delivered over 100
pallets of food and essentials to Lismore, North Richmond and the
Northern Rivers region in New South Wales to get supplies quickly
to isolated locals.
In total, Coles and our customers contributed more than $1.8
million to the Red Cross Queensland and New South Wales Floods
Appeal during the campaign. This helped the Red Cross to support
volunteers and staff to assist with evacuations, relief centres and
cash assistance. In addition, monies raised will enable longer
term recovery work in flood-affected communities.
Sourcing that is better together
Working together with our farmers, suppliers and industry
partners, we are seeking to reduce our environmental and social
impacts.
With respect to Coles Own Brand products, we use independent
and internationally recognised certification and verification
programs to support environmental protection across our tea,
coffee, cocoa, sugar, timber, paper, pulp, palm oil and seafood
supply chains.
During the year, we commenced an environmental impact review
of Coles Own Brand products, mapping potential impacts against
three key areas: deforestation, water security and soil health. The
results of this review will inform a future action plan to reduce our
environmental impacts and will help us prepare for emerging
disclosure frameworks focused on nature-related financial risks
and opportunities.
In FY22, Coles worked to further safeguard human rights and
strengthen our processes and systems for managing risk within
our supply chain, collaborating closely with suppliers, unions and
workers. A detailed overview of these activities can be found in
Coles’ 2022 Commitment to Human Rights (Modern Slavery
Statement), available at www.colesgroup.com.au.
Farming that is better together
Coles Supermarkets has an Australian-first sourcing policy,
reflecting our commitment to strong, multi-generational and
collaborative relationships with Australian farmers and producers.
In FY22, more than 96% of fresh produce, by volume, was sourced
from suppliers all over Australia.6
Since its launch in 2015, the Coles Nurture Fund has awarded
more than $30 million in financial support to over 90 Australian
producers. The Fund seeks to drive innovation and generational
sustainability in Australia by helping producers expand local
production, reduce water and energy consumption, and increase
recycling. More information on the Coles Nurture Fund and
recipients is available at www.coles.com.au/nurturefund.
We understand that many of our customers care deeply about
animal welfare and our Animal Welfare Policy sets out our
expectations regarding the treatment of animals in our Coles Own
Brand supply chain, helping to ensure we source from farming
operations that have a high standard of animal welfare and, where
appropriate, hold animal welfare certification. Coles offers
customers the broadest range of RSPCA Approved products of any
major Australian supermarket – in FY22, 347 RSPCA Approved
products were available in our supermarkets and Coles Express
stores.
Local teams unload bulk donations from Coles for flood-affected residents in Lismore (top); Red Cross team member Alex and Coles team member Matt pack
donations for flood-affected residents in Lismore (right); and flood waters in Lismore. Photo credit: Stuart Cumming/NewsPix (bottom lef).
2 SecondBite uses the conversion of total kilograms donated multiplied by two to determine equivalent meals.
3 Foodbank uses the conversion of total kilograms donated divided by 0.555 to determine equivalent meals.
4 Based on results of our May 2022 mysay engagement survey, which was responded to by 72% of team members.
5 Includes Coles’ direct contribution of cash, time, in-kind and management costs as well fundraising from customers and suppliers (leverage). 6 Excluding floral, nuts, dried fruit, sauces, dressings and packaged salads.
For more information read the
2022 Sustainability Report, available at
www.colesgroup.com.au
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Coles Group Limited 2022 Annual Report
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Governance at Coles
We are committed to the highest standards of corporate
governance and believe a robust and transparent corporate
governance framework is central to the success of our business.
Our corporate governance framework
The Board provides leadership and approves the strategic
direction and objectives of the Group in the long-term interests of,
and to maximise value for, shareholders.
The Board and management team are committed to maintaining
and building on the confidence of our shareholders, our
customers, our suppliers, our team members and the broader
community as we continue to strive to achieve our vision to
become the most trusted retailer in Australia and to grow longterm shareholder value.
Coles’ 2022 Corporate Governance Statement contains a
comprehensive overview of our corporate governance framework
and highlights and is available at www.colesgroup.com.au/
corporategovernance.
James Graham AM
Chairman of the Board
Chairman of the Nomination Committee
and Member of the People and Culture Committee
David Cheesewright
Member of the Nomination Committee
and the People and Culture Committee
Abi Cleland
Member of the Nomination Committee
and the People and Culture Committee
Paul O’Malley
Chairman of the Audit and Risk Committee
and Member of the Nomination Committee
Steven Cain
Managing Director and Chief Executive Officer
Jacqueline Chow
Member of the Nomination Committee
and the Audit and Risk Committee
Richard Freudenstein
Chairman of the People and Culture Committee
and Member of the Nomination Committee
Wendy Stops
Member of the Nomination Committee
and the Audit and Risk Committee
Board of Directors
Biographical details of the Board of Directors can be found on pages 59-60.
| The Board |
| Managing Director and Chief Executive Officer |
| Executive Leadership Team |
| Coles Team Members |
Audit and Risk
Committee
People and Culture
Committee
Nomination
Committee
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Board skills matrix
The Board recognises the importance of having directors who
possess a broad range of skills, background, expertise, diversity
and experience in order to facilitate constructive decision-making
and facilitate good governance processes and procedures.
The Board, on the recommendation of the Nomination Committee,
determines the composition, size and structure requirements for
the Board and regularly reviews its mix of skills to make sure it
covers the skills needed to address existing and emerging
business and governance issues relevant to the Company.
The current mix of skills and experience represented on the Board
as at 21 September 2022 is set out in the below skills matrix:
| Skill/experience | Number of Directors with the requisite skill |
| Corporate governance Experience serving on boards in diverse industries and for a range of organisations, including public listed entities or other large, complex organisations. An awareness of global practices and trends. Experience in implementing high standards of governance in a large organisation and assessing the effectiveness of senior management. |
8 |
| Executive experience Effective senior leadership in a large, complex organisation or public listed company. Successfully leading organisational transformation and delivering sustained business success, including through line management responsibilities. |
8 |
| Financial acumen Senior executive or other experience in financial accounting and reporting, internal financial and risk controls, corporate finance and/or restructuring, corporate transactions, including ability to probe the adequacies of financial and risk controls. |
8 |
| Strategic thinking Demonstrated ability to identify and critically assess strategic opportunities and threats and to develop and implement successful strategies to create sustained, resilient business outcomes. Ability to question and challenge on delivery against agreed strategic planning objectives. |
8 |
| People, culture and remuneration Experience overseeing or implementing a company’s culture and people management framework, including succession planning to develop talent, culture and identity. Board or senior executive experience in applying remuneration policy and framework, including linking remuneration to strategy and performance, and the legislative and contractual framework governing remuneration. |
8 |
| Risk management Understanding of and experience in identifying and monitoring key risks to an organisation and implementing appropriate risk management frameworks and procedures and controls. |
8 |
| Retail and FMCG skills and experience Senior executive experience in the retail and fast moving consumer goods (FMCG) industry, particularly in the food and liquor industry, including an in-depth knowledge of merchandising, product development, exporting, logistics and customer strategy. |
6 |
| Customer service delivery Advanced understanding of customer service delivery models, benchmarking and oversight. |
8 |
| Supply chains Senior executive experience in managing or overseeing the operation of supply chains and distribution models in large, complex entities, including retail suppliers. |
7 |
| Interstate / global business experience Senior executive or equivalent experience in national or international business, providing exposure to a range of interstate or international political, regulatory and business environments. |
8 |
| Property development and asset management Experience in property development and asset management. |
5 |
| Marketing Senior executive experience in consumer and brand marketing and in eCommerce and digital media, including in the retail industry. |
6 |
| Digital technology and innovation Expertise and experience in the adoption and implementation of new technology. Understanding of key factors relevant to digital disruption and innovation, including opportunities to leverage digital technologies and cyber security and understanding the use of data and analytics. |
7 |
| Sustainability and environment Experience in managing and driving environmental management and social responsibility initiatives, including in relation to sustainability and climate change. |
6 |
| Health and safety Identification of key health and safety issues, including management of workplace safety, and mental and physical health. |
7 |
| Regulatory and public policy Senior executive experience working in diverse political, cultural, regulatory and business environments. Experience in regulatory and competition policy and influencing public policy decisions and outcomes, particularly in relation to regulation relevant to food and liquor industries. |
8 |
Executive Leadership
Team
Steven Cain
Managing Director & Chief Executive Officer
Matthew Swindells
Chief Operations & Sustainability Officer
Kris Webb
Chief People Officer
Darren Blackhurst
Chief Executive Liquor
George Saoud
Chief Executive Emerging Businesses
Sally Fielke
General Manager Corporate
& Indigenous Affairs
Charlie (Sharbel Raymond) Elias
Chief Financial Officer
John Cox
Chief Technology Officer
Leah Weckert
Chief Executive, Commercial & Express
David Brewster
Chief Legal & Safety Officer
Daniella Pereira
Company Secretary
Ben Hassing
Chief Executive eCommerce
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Coles Group Limited 2022 Annual Report
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Operating and Financial Review
The Operating and Financial Review relates to Coles Group
Limited (‘the Company’) and its controlled entities (together,
‘Coles’, ‘Coles Group’, or ‘the Group’).
Forward-looking statements
This report contains forward-looking statements in relation to the
Group, including statements regarding the Group’s intent, belief,
goals, objectives, opinions, initiatives, commitments or current
expectations with respect to the Group’s business and operations,
market conditions, results of operations and financial conditions,
and risk management practices. This report also includes
forward-looking statements regarding climate change and other
environmental and energy transition scenarios. Forward-looking
statements can generally be identified by the use of words such as
‘forecast’, ‘estimate’, ‘plan’, ‘will’, ‘anticipate’, ‘may’, ‘believe’,
‘should’, ‘expect’, ‘intend’, ‘outlook’, ‘guidance’ and other similar
expressions.
Any forward-looking statements are based on the Group’s current
knowledge and assumptions, including with respect to financial,
market, risk, regulatory and other relevant environments that will
exist and affect the Group’s business and operations in the future.
The Group does not give any assurance that the assumptions will
prove to be correct. The forward-looking statements involve
known and unknown risks, uncertainties and assumptions, that
could cause the actual results, performances or achievements of
the Group to be materially different from the relevant statements.
There are also limitations with respect to scenario analysis, and it
is difficult to predict which, if any, of the scenarios might
eventuate. Scenario analysis is not an indication of probable
outcomes and relies on assumptions that may or may not prove to
be correct or eventuate.
Readers are cautioned not to place undue reliance on forwardlooking statements. Except as required by applicable laws or
regulations, the Group does not undertake to publicly update,
review or revise any of the forward-looking statements or to
advise of any change in assumptions on which any such statement
is based. Past performance cannot be relied on as a guide to
future performance.
Non-IFRS information
This report contains IFRS and non-IFRS financial information.
IFRS financial information is financial information that is
presented in accordance with all relevant accounting standards.
Non-IFRS financial information is financial information that is
presented other than in accordance with relevant accounting
standards and may not be directly comparable with other
companies’ information.
Any non-IFRS financial information included in this report has
been labelled to differentiate it from statutory or IFRS financial
information. Non-IFRS measures are used by management to
assess and monitor business performance at the Group and
segment level and should be considered in addition to, and not as
a substitute for, IFRS information. Operating metrics that are
prepared on a non-IFRS basis have been included in the segment
commentary to support an understanding of comparable
business performance. Non-IFRS information is not subject to
audit or review.
Business model and strategy
Coles is an omnichannel retailer selling products including fresh
food, groceries and liquor through its supermarkets, liquor stores
and eCommerce platforms. Coles also sells convenience products
and, under its alliance with Viva Energy (Viva), is a commission
agent for retail fuel sales through the Coles Express network. We
employ more than 120,000 team members, engage with more than
8,000 suppliers, have more than 430,000 direct shareholders and
we welcome millions of customers through our extensive store
network and eCommerce platforms every week.
The Group’s reportable segments are:
• Supermarkets: fresh food, groceries and general merchandise
retailer with a national network of 835 supermarkets, including
Coles Online and Coles Financial Services;
• Liquor: liquor retailer with 933 stores nationally under the
brands Liquorland, First Choice Liquor Market and Vintage
Cellars, including online liquor delivery services; and
• Express: convenience store operator and commission agent
for retail fuel sales across 711 sites nationally.
Other business operations that are not separately reportable, such
as Property, as well as costs associated with enterprise functions,
such as Insurance and Treasury, are included in Other.
Coles is one of the most trusted consumer brands in Australia with
businesses including Coles, Coles Local, Coles Express, Liquorland,
First Choice Liquor Market, Vintage Cellars and Coles Financial
Services. Coles is also a 50% shareholder of Flybuys, a loyalty
program with more than six million active households.
Coles’ core competencies include merchandising, product
development and supplier relationships, marketing, customer
service and maintaining and operating a national store and online
network. Coles also operates an integrated supply chain, including
logistics, and a national distribution centre network.
Coles’ vision is to become the most trusted retailer in Australia and
grow long-term shareholder value.
Since launching our ‘Winning in our second century strategy’ in
2019, Coles has made significant progress in the delivery of our
vision, purpose and strategic pillars. By building on the success of
the past three years, we are evolving the strategy to position Coles
to thrive in the next horizon.
The Coles Group purpose has been updated to ‘sustainably help all
Australians lead healthier, happier lives’. Coles sells more than just
food, and this change reflects the wider role our Company plays in
the community and the ever-broadening range of offers
encompassing food, drink and home. Our values of customer
obsession, passion and pace, responsibility and health and
happiness have not changed, and they continue to guide the dayto-day decisions and actions of our team members.
The five key areas we have set the ambition to differentiate in have
also been updated to encompass our wider ambitions in areas such
as eCommerce, sustainability, team engagement and community
partnerships. They are:
1. Win in food and drink with unique omnichannel offering
2. Be a great value exclusive brands powerhouse and destination
for convenience and health
3. Achieve long-term structural cost advantage through Smarter
Selling programs, including data, automation and technology
partnerships
4. Be Australia’s most sustainable supermarket group together
with our partnerships and communities
5. Deliver at pace through our engaged team
We have made progress against our three strategic pillars of Inspire
Customers, Smarter Selling and Win Together while supporting
our team members, customers, suppliers, and community partners.
| Supermarkets | Liquor | Convenience |
Our brands
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Coles Group Limited 2022 Annual Report
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Inspire Customers
The focus areas of the first pillar of our strategy, ‘Inspire Customers
through best value solutions in food, drink and home’, are outlined
below:
• Trusted value through personalisation
• Exclusive brands powerhouse
• Leading anytime, anywhere, anyhow shopping
• Destination for health, sustainability and convenience
• Expanded offer through new markets and services
Update on Inspire Customers pillar:
We have made progress against our strategic pillar of Inspire
Customers by delivering a tailored range and trusted value to
our customers. Coles was ranked by the Roy Morgan survey as
one of the most trusted consumer brands in Australia for the
third year in a row.
With Australian families facing increased pressure on household
budgets, our commitment to deliver trusted value remains more
important than ever. With an Exclusive to Coles range of almost
6,000 products, Coles provides extensive value-oriented options.
Seasonal value campaigns and everyday pricing have continued to
support strong value offers across the year, with prices maintained
on many essential everyday items.
More than 1,300 Coles Own Brand products were launched during
the year, while Coles Own Brand won 91 product awards including
nine consumer-voted ‘Product of the Year’ awards for innovation
across products including Coles’ Ultimate 40% Choc Chip Cookies
and DALEY ST Dark Ground Coffee.
In Liquor, trusted value was delivered through lowering prices for
longer with more than 2,000 Price Drops across
Liquorland and First Choice Liquor Market. Exclusive Liquor Brand
(ELB) and local product contribution also grew strongly, delivered
through improved range planning and market-leading sustainability
innovations such as the 100% recyclable eco-bottle wine range
which was launched during the year. The ELB portfolio continued to
be recognised with more than 420 awards received during the year
including ELB brand, Smithy’s, winning the Australian Lager of the
Year at the Melbourne International Beer Competition, and The Bio
Project Tempranillo Blend winning Gold at the National Wine Show
of Australia.
With a focus on anytime, anywhere, anyhow shopping, Coles
delivered strong eCommerce growth during the year, across
Supermarkets and Liquor.
In Supermarkets, eCommerce sales grew by 41% with progress made
in the unified customer experience through the launch of a new
shoppable Coles App. Capacity for customers increased through the
expansion of Click & Collect Rapid (order to pick up in 90 minutes) to
more than 450 stores and same day home delivery to more than 520
stores. Benefits were also expanded for Coles Plus members, offering
members a differentiated omnichannel experience with online and
instore shopping benefits.
In Liquor, eCommerce sales grew by 49% through the opening of a
fourth eCommerce dark store, and an expanded range. Capacity was
increased through the continued roll out of Click & Collect, the expansion
of on demand (immediacy delivery) which is available in more than 400
stores while 1,400 products were added to the online range.
We are also creating opportunities with our joint venture partner
in Flybuys, providing additional value for Flybuys members with
new customer offers and the addition of Bunnings and Officeworks
to the Flybuys portfolio.
In an Australian first, Coles partnered with KitchenAid to introduce a collectible program to reward customers with a premium collection of cookware designed to go
straight from the oven to serving on the table.
Smarter Selling
The focus areas of the second pillar of our strategy ‘Smarter Selling
through efficiency and innovation’, are outlined below:
• Technology and digitally empowered organisation
• Strategic and sustainable sourcing
• Optimised network and formats
• Agile Store Support Centre using data driven insights
Update on Smarter Selling pillar:
We continue to deliver against our Smarter Selling strategic
pillar, with approximately $230 million of benefits realised
during the year and are on track to deliver $1 billion of benefits,
under our four-year program, by the end of FY23.
With the benefits being generated, Coles has been able to partially
offset cost pressures in the business, including the COVID-19 costs
incurred during the year and, importantly, invest in an enhanced
customer service, both online and in store.
Key Smarter Selling initiatives delivered during the year focused on
technology-led in-store improvements such as the use of artificial
intelligence with dynamic markdowns rolled out in fresh produce
and dairy, following the successful deployment of this technology
in meat in FY21. The in-store service transformation also saw the
roll out of trolley assisted checkouts and customer bagging benches
which are giving customers greater choice while at the same time,
improving team member productivity. Front of store loss prevention
initiatives rollout also continued with more than 80% of stores now
protected with entry gates and glass balustrading.
Efficiencies in eCommerce were delivered through the
introduction of an automated fraud detection tool to reduce loss,
as well as a continued focus on reducing our cost to serve through
improved pick efficiencies and delivery van optimisation which
was achieved through adjusting store catchments and optimising
routes, shif times and customer offerings.
Demand-based heating, ventilation and air-conditioning was
installed in stores, as well as energy efficient LED lights across the
Coles Express network.
During the year, Coles aligned its meat operating models
nationally which delivers high quality retail ready meat for
customers. This also reduces waste and provides a safer working
environment for team members.
Coles’ store format strategy is to invest in the right store, at the
right time, with the optimum format. During the year, Coles
renewed 50 supermarkets including 12 Format A, 10 Format B, 22
Format C and six Coles Local stores. In Liquor, 191 Black and White
Liquorland, eight First Choice Liquor Market and nine Vintage
Cellar Evolution stores were renewed.
The Witron and Ocado transformation projects are the biggest
automation projects in Coles’ history. In FY22, the Ocado
Customer Fulfilment Centres (CFCs) in Melbourne and Sydney
were handed over for robotic fit-out. In Queensland, the fit-out of
the automation equipment and racking progressed in the Witron
automated Distribution Centre (DC), and the fit-out of automation
commenced in the New South Wales automated DC.
The Witron Queensland automated distribution centre is on track to be commissioned in 2023.
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Coles Group Limited 2022 Annual Report
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Win Together
The focus areas of the third and final pillar of our strategy ‘Win
Together with our team, suppliers and communities’, are outlined
below:
• Safer choices together
• Great place to work
• Better Together through diversity and community
• Together to Zero to drive generational sustainability
• Growth through partnership
Update on Win Together pillar:
We have made progress against our strategic pillar of Win
Together focusing on helping all Australians to lead healthier
and happier lives, including our team members, our suppliers
and our communities.
Coles again delivered another year of improvement in our safety
performance with a 14.7% improvement in Total Recordable Injury
Frequency Rate (TRIFR) compared to FY21. This was delivered
through investments in team member development, wearable
technology and critical risk reduction programs such as fall from
height improvements and manual handling equipment in stores.
We aim for Coles to be a Great place to work and during the year,
more than 90,000 team members provided feedback through an
employee engagement survey. The results showed a threepercentage point improvement, including improved scores in
mental health metrics.
Coles’ vision for diversity and inclusion is to foster a safe, inclusive
and diverse workplace that is reflective of the community and
customers we serve. We know we are a team that is Better Together.
During the year, Coles was recognised as a Gold tiered employer for
the second year in a row at the 2022 Australian LGBTQ Inclusion
Awards, based off the Australian Workplace Equality Index. The
Australian Network on Disability also recognised Coles as a top
employer for people with disability at the 2022 Disability Confidence
Awards.
Creating opportunities, raising awareness, sharing stories and
strengthening relationships with our Indigenous team members
remains a focus. However despite doing so, we ended the financial
year with only 3.2% Indigenous team members and we continue to
develop strategies to increase longer term participation. Coles was
also pleased to support NAIDOC week during the year afer
celebrations were cancelled in FY21 due to COVID-19.
Our ambition to be Australia’s most sustainable supermarket will
see us transition to 100% renewable energy by FY25, continue to
invest in solar energy, efficiency and reduction of food waste, and
continue to focus on delivering our Coles Own Brand commitments.
We continue to strengthen our processes and systems in close
collaboration with key stakeholders such as suppliers, unions and
workers in our supply chain. We partnered with farmers in Victoria
and New South Wales to launch Coles Finest Certified Carbon
Neutral Beef range1, providing customers with more sustainable
options. In Liquor, we launched the 100% recyclable eco-bottle
wine range2, made from 100% recycled PET plastic and 83% lighter
than an average glass wine bottle. The eco-bottle has a lower
carbon footprint in all stages of production, transportation and
recycling.
In addition to our long standing programs of support in providing
edible food for charities through our partnerships with SecondBite
and Foodbank, significant contributions to other charities and
community organisations were made in FY22. More than $8.6
million was raised for FightMND to help fund research and
treatments for Motor Neurone Disease; more than $4.1 million
raised for Redkite to help families affected by childhood cancer;
and more than $1.8 million raised for the Red Cross Queensland and
New South Wales Flood Appeal.
Good progress was also made on the pathway to Together to Zero.
During the year, Coles secured a path to 100% renewable electricity
by the end of FY25 through three additional renewable energy
contracts to purchase large-scale generation certificates with
Origin Energy, ACCIONA Energia, and ENGIE. Coles was ranked the
number two food retailer globally for sustainable business practices
in the World Benchmarking Alliance’s 2021 Food and Agriculture
Benchmark3. Coles has committed $10 million over 10 years to our
‘Blue Carbon Partnership4’ with the Great Barrier Reef Foundation,
supporting programs to capture and store atmospheric carbon in
marine ecosystems that are 30-50 times more efficient at this task
than land-based forests.
1 Product is certified carbon neutral from paddock to shelf under Climate Active Carbon Neural Standards and ranged in selected Victorian stores.
2 Range was launched in collaboration with Packamama and winemakers Garcon Wines, Taylors Wines and Accolate Wines.
3 Based on 2021 Food and Agriculture Benchmark of 350 food and agriculture companies globally by the World Benchmarking Alliance. Benchmark across four key
measurement areas of social inclusion, nutrition, governance & strategy, and environment. Coles ranked #12/350 companies overall and #2/62 of food retailers
globally.
4 Coles’ partnership with the Great Barrier Reef Foundation will dedicate funds towards a number of innovative projects based on ‘blue carbon’ – the process of
capturing and storing carbon in oceanic or coastal ecosystems such as mangroves, tidal marshes and seagrasses. These ecosystems have the potential to capture
and store more carbon than tropical rainforests, helping in the fight against climate change. More information is available at https://www.colesgroup.com.au/
media-releases/?page=coles-commits-10-million-to-help-protect-the-great-barrier-reef.
Top: Tim from Coles’ fresh produce team visits organic vegetable growers Wayne and Natasha Shields from Peninsula Fresh Organics in Victoria. The business was
awarded a $300,000 grant to help transform its irrigation infrastructure in a bid to save 60 million litres of water per year and prevent run off of nutrients into local
waterways.
Bottom: Coles ambassador Eddie Betts at a Coles Healthy Kicks program, inspiring young Australians to enjoy healthy and happy lifestyles.
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Group performance
| $m | FY22 | FY21 | CHANGE |
| Sales revenue | |||
| Supermarkets1 | 34,624 | 33,868 | 2.2% |
| Liquor | 3,613 | 3,525 | 2.5% |
| Express | 1,132 | 1,192 | (5.0%) |
| Group sales revenue | 39,369 | 38,585 | 2.0% |
| EBIT | |||
| Supermarkets2 | 1,715 | 1,702 | 0.8% |
| Liquor | 163 | 165 | (1.2%) |
| Express | 42 | 67 | (37.3%) |
| Other | (51) | (61) | 16.4% |
| Group EBIT | 1,869 | 1,873 | (0.2%) |
| Financing costs | (396) | (427) | 7.3% |
| Income tax expense | (425) | (441) | 3.6% |
| Profit afer tax | 1,048 | 1,005 | 4.3% |
1 FY21 sales revenue has been restated to reflect a reclassification of fulfilment income to Sales revenue (previously reported within Other Income).
2 FY22 includes approximately $30 million of implementation operating costs in relation to the Witron and Ocado transformation projects ($7 million in FY21).
Highlights
• Sales revenue growth of 2.0% to $39.4 billion with eCommerce
performance in Supermarkets and Liquor cycling elevated
COVID-19 related prior year sales.
• EBIT of $1,869 million despite significant COVID-19 costs,
transformation project costs, flood events and lower Express
earnings as a result of reduced mobility from COVID-19
lockdowns.
• Cash realisation of 104% and net debt of $506 million.
• Fully-franked final dividend of 30.0 cents per share declared,
taking total dividends in relation to FY22 to 63.0 cents.
Performance overview
Despite cycling significantly elevated COVID-19 related sales in
the prior corresponding period, FY22 Group sales revenue of $39.4
billion increased by 2.0% in FY22.
Group EBIT of $1.9 billion decreased by 0.2%. EBIT includes
COVID-19 costs of approximately $240 million and project
implementation costs in relation to the Witron and Ocado
transformation projects of approximately $30 million and lower
Express earnings as a result of reduced mobility from COVID-19
travel restrictions. Smarter Selling benefits of approximately
$230 million were also realised during the year. The vast majority
of these EBIT impacts were borne by Supermarkets while Liquor
comprised a minor component.
Impacts of COVID-19 and floods
Supermarkets
Extended lockdowns in New South Wales, the Australian Capital
Territory and Victoria for much of the first half led to higher sales
and customers preferring or having to shop locally rather than in
larger shopping centre stores. As restrictions eased, sales growth
remained elevated with a strong Christmas trading period and the
contribution from shopping centre stores increasing.
As Omicron became more prevalent early in the second half and
despite the lack of formal restrictions, local shopping trends reemerged. In addition, availability issues in store as a result of a
large number of Coles and supplier team members being required
to isolate again led to customers choosing to shop at their local
store network. The availability challenges impacted Coles’
promotional program which was restored by the end of the year.
Over the fourth quarter, local shopping trends subsided and the
contribution from shopping centre stores increased again.
The highly disruptive flood events in South Australia, New South
Wales and Queensland early in the second half caused severe road
and rail logistics disruptions, impacting availability. This also led
to 30 temporary store closures and, by the end of the year, one
remained closed and one store permanently closed.
eCommerce growth remained elevated early in FY22. As the year
progressed and restrictions eased, customers returned to
shopping in store, however eCommerce sales are more than two
times pre-pandemic levels.
Liquor
Liquor sales remained elevated in the first half with the closure of
on-premise venues in New South Wales, the Australian Capital
Territory and Victoria. However, the COVID-19 sales impacts
tapered over the year as restrictions eased and on-premise
venues re-opened. The emergence of Omicron early in the second
half impacted sales with limited social gatherings and associated
liquor consumption with customers still preferring larger pack
sizes. Consistent with Supermarkets, availability was also
impacted as a result of Liquor and supplier team members being
required to isolate.
Liquor stores were disrupted due to the flood events in February
with 66 Liquor stores initially impacted with seven stores
remaining closed at the end of the year.
eCommerce performed strongly across the year with penetration
peaking at 5.0% in the second quarter and ending the fourth
quarter at 4.5%.
Express
Fuel volumes were negatively impacted from reduced mobility
and traffic flows as a result of lockdowns in the first half. The
recovery from COVID-19 restrictions slowed throughout the
second half due to the flood events, inclement weather as well as
higher fuel prices. More than 30 Express sites were closed as a
result of the floods with three remaining closed at the end of the
year.
Costs
COVID-19 costs of approximately $240 million were incurred
during the year, compared to approximately $130 million of
COVID-19 costs incurred in FY21. COVID-19 costs were incurred
primarily in the Supermarkets and Liquor segment and largely
related to store remuneration, including costs in relation to team
member absenteeism, recruitment, rapid antigen testing and
additional door greeters to ensure QR code compliance in the
early part of the first half.
Coles incurred direct costs from flood events in the second half of
approximately $30 million including the loss of stock, asset writeoffs and increased freight costs through rail and road disruptions.
The majority of these costs were recovered through insurance in
the fourth quarter.
Award covered salaried team member review
In February 2020, Coles announced it was conducting a review
into the pay arrangements for all team members who received a
salary and were covered by the General Retail Industry Award
2010 (GRIA). The review assessed the remuneration paid to 15,011
team members against GRIA. Coles conducted a remediation
program, and to date Coles has incurred $13 million of remediation
costs with a further $12 million provided for at the date of this
report.
Following the announcement in February 2020, the Fair Work
Ombudsman (FWO) commenced an investigation into Coles’ pay
arrangements for a group of the affected salaried team members
covered by the GRIA.
In December 2021, the FWO filed proceedings in the Federal Court
of Australia which include issues relating to the interpretation and
application of various provisions of the GRIA. FWO alleges that
Coles is obligated to pay a further $108 million in remediation
payments to 7,687 team members for the period 1 January 2017 to
31 March 2020. This group is a subset of the award covered salaried
employees which were assessed as part of the 2020 review by
Coles. Additionally, the period of time covered in the proceedings
is a lesser period than the period covered in the Coles’ remediation.
Coles has lodged its defence in this proceeding, and the matter
has been listed for trial in mid 2023. The trial will include
consideration of threshold issues, including interpretation of the
GRIA provisions. As such, the potential outcome, extent to which
further remediation may be necessary, and costs associated with
this matter remain uncertain as at the date of this report.
In May 2020, Coles was notified that a class action proceeding had
been filed in the Federal Court of Australia in relation to payment
of Coles managers employed in supermarkets. Coles is defending
the proceeding. This matter will be heard in conjunction with the
FWO proceedings at trial in mid June 2023. The potential outcome
and total costs associated with this matter remain uncertain as at
the date of this report.
Earnings per share and dividends
Basic earnings per share (EPS) increased to 78.8 cents, a 4.6%
increase from the prior year.
| FY22 | FY21 | |
| Profit for the period ($m) | 1,048 | 1,005 |
| Weighted average number of ordinary shares for basic EPS (shares, million) |
1,330 | 1,334 |
| Weighted average number of ordinary shares for diluted EPS (shares, million) |
1,331 | 1,335 |
| Basic EPS (cents) | 78.8 | 75.3 |
| Diluted EPS (cents) | 78.7 | 75.3 |
The Board has determined a fully franked final dividend of 30.0
cents per share (cps).
| In respect of the year: | CPS | FRANKED AMOUNT PER SECURITY |
| FY22 | ||
| Interim dividend | 33.0 cents | 33.0 cents |
| Final dividend | 30.0 cents | 30.0 cents |
| FY21 | ||
| Interim dividend | 33.0 cents | 33.0 cents |
| Final dividend | 28.0 cents | 28.0 cents |
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A summary of key balance sheet accounts for the Group:
| $m | FY22 | FY21 | CHANGE |
| Assets | |||
| Cash and cash equivalents | 589 | 787 | (25.2%) |
| Trade and other receivables | 470 | 368 | 27.7% |
| Inventories | 2,448 | 2,107 | 16.2% |
| Property, plant and equipment | 4,807 | 4,463 | 7.7% |
| Right-of-use assets | 7,199 | 7,288 | (1.2%) |
| Intangible assets | 1,864 | 1,698 | 9.8% |
| Deferred tax assets | 822 | 873 | (5.8%) |
| Other | 637 | 539 | 18.2% |
| Total assets | 18,836 | 18,123 | 3.9% |
| Liabilities | |||
| Trade and other payables | 4,335 | 3,660 | 18.4% |
| Provisions | 1,278 | 1,408 | (9.2%) |
| Interest-bearing liabilities | 1,095 | 1,142 | (4.1%) |
| Lease liabilities | 8,681 | 8,756 | (0.9%) |
| Other | 323 | 344 | (6.1%) |
| Total liabilities | 15,712 | 15,310 | 2.6% |
| Net assets | 3,124 | 2,813 | 11.1% |
Cash and cash equivalents decreased to $589 million despite strong
operating activities of $2,690 million due to the repayment of debt.
Trade and other receivables increased to $470 million largely driven
by an increase in international receivables and timing.
Inventory increased to $2,448 million driven by an increase in stock
holdings to support availability and COVID-19 recovery.
Right-of-use assets decreased to $7,199 million largely driven by
depreciation for the period, partly offset by new leases and
modifications.
Property, plant and equipment increased to $4,807 million largely
reflecting investment in the Group’s annual capital program, partly
offset by depreciation and property transactions during the year.
Intangible assets increased to $1,864 million largely driven by the
Group’s continued investment in technology, partly offset by
amortisation for the year.
Trade and other payables increased to $4,335 million due to the
increase in purchases and inventory following availability issues,
extended shipping times and costs.
Provisions decreased to $1,278 million largely driven by costs incurred
in the closure of the Goulburn Distribution Centre during the period,
move to retail ready meat and reduction in employee entitlements.
Capital management
Interest-bearing liabilities reflect external borrowings and debt
capital funding commitments. Coles repaid $100 million term debt in
August 2021 which was replaced by $50 million term debt.
As at 26 June 2022, Coles’ average debt maturity was 6.0 years, with
undrawn facilities of $2,345 million. Coles remains committed to
maintaining diversified funding sources and extending its debt
maturity profile over time.
The lease-adjusted leverage ratio at the reporting date was 2.8x with
current published credit ratings of BBB+ with Standard & Poor’s and
Baa1 with Moody’s.
Balance sheet
Net cash flows from operating activities decreased to $2,690
million predominantly reflecting an increase in income tax paid.
Net cash flows used in investing activities increased to $1,142
million reflecting the Group’s annual capital program, partly
offset by the proceeds from property sales during the year.
Net cash flows used in financing activities decreased to $1,746
million reflecting the Group’s lease payments, dividends and net
repayment of borrowings.
Cash flow
Summary cash flows of the Group:
| $m | FY22 | FY21 | CHANGE |
| Cash flows from operating activities | |||
| Receipts from customers | 41,887 | 41,138 | 1.8% |
| Payments to suppliers and employees | (38,309) | (37,510) | 2.1% |
| Interest paid | (41) | (47) | (12.8%) |
| Interest component of lease payments | (363) | (390) | (6.9%) |
| Interest received | 1 | 4 | (75.0%) |
| Income tax paid | (485) | (358) | 35.5% |
| Net cash flows from operating activities | 2,690 | 2,837 | (5.2%) |
| Net cash flows used in investing activities | (1,142) | (1,106) | 3.3% |
| Net cash flows used in financing activities | (1,746) | (1,936) | (9.8%) |
| Net increase/(decrease) in cash and cash equivalents | (198) | (205) | (3.4%) |
eCommerce capacity was expanded during the year with Click & Collect now available at more than 740 stores.
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Supermarkets
Segment overview
| $m | FY22 | FY21 | CHANGE |
| Sales revenue1 | 34,624 | 33,868 | 2.2% |
| EBITDA2 | 3,022 | 3,001 | 0.7% |
| EBIT2 | 1,715 | 1,702 | 0.8% |
| Gross margin (%) | 26.3 | 25.9 | 42bps |
| Cost of doing business (CODB)1 (%) | (21.4) | (20.9) | (50bps) |
| EBIT margin (%) | 5.0 | 5.0 | (7bps) |
1 FY21 sales revenue and CODB have been restated to reflect a reclassification of fulfilment income to Sales revenue (previously reported within Other Income).
2 FY22 includes approximately $30 million of implementation operating costs in relation to the Witron and Ocado transformation projects ($7 million in FY21).
Operating metrics (non-IFRS)
| FY22 (52 WEEKS) |
2H22 (25 WEEKS) |
1H22 (27 WEEKS) |
FY21 (52 WEEKS) |
|
| Gross retail sales1 ($ billions) | 35.7 | 17.1 | 18.6 | 34.6 |
| Gross retail sales growth1 (%) | 3.0 | 4.0 | 2.0 | 3.0 |
| Comparable sales growth (%) | 2.6 | 3.8 | 1.5 | 2.5 |
| eCommerce sales2 ($ billions) | 2.8 | 1.3 | 1.5 | 2.0 |
| eCommerce penetration2 (%) | 7.9 | 7.6 | 8.2 | 5.8 |
| Sales density per square metre3 (MAT $/sqm) | 18,209 | 18,209 | 17,919 | 17,847 |
| Net promoter score (point increase/(decrease)) | (3.6) | (7.5) | 0.2 | 2.3 |
| Inflation / (deflation) (%) | 1.7 | 3.8 | (0.2) | 0.8 |
| Inflation / (deflation) excl. tobacco and fresh (%) | 1.6 | 3.6 | (0.2) | (0.8) |
1 Gross retail sales comprise retail sales on a gross basis before adjusting for concession sales and the cost of Flybuys scheme points.
2 eCommerce sales include Liquor sold through coles.com.au. FY21 eCommerce sales and penetration has been restated to reflect a reclassification of fulfilment
income to Sales revenue (previously reported within Other Income).
3 Sales density per square metre is on a moving annual total (MAT), calculated on a rolling 52-week basis.
Highlights
Supermarkets sales revenue was $34.6 billion for the year, an
increase of 2.2% on the prior corresponding period.
Sales revenue growth was driven by the successful execution of
trade plans throughout the year including the seasonal Christmas
and Easter campaigns, the KitchenAid Ovenware and MasterChef
Knives customer continuity campaigns, as well as value campaigns
focused on lowering the cost of living for customers. eCommerce
contributed to sales revenue growth, particularly in the first half
during the lockdowns in New South Wales, Victoria and the
Australian Capital Territory.
eCommerce sales of $2.8 billion grew by 41% year-on-year with
penetration of 7.9% in FY22, compared to 5.8% in the prior
corresponding period. During the year, Coles Online increased its
network coverage with 95% of Australians now having access to
home delivery. The Click & Collect network expanded to more
than 740 stores with Click & Collect to the boot of car available at
more than 670 stores. With a focus on immediacy, Click & Collect
Rapid was expanded to more than 450 stores and same day home
delivery expanded to more than 520 stores. The unified customer
experience was enhanced through the launch of a shoppable
Coles App. Benefits for Coles Plus members were expanded during
the year offering a differentiated omnichannel experience with
online and instore shopping benefits.
Total Supermarkets price inflation of 1.7% was recorded for the
year and 4.3% for the fourth quarter. In the fourth quarter, fresh
inflation was 4.7%, driven by both bakery, reflecting higher wheat
prices, and fresh produce, due to the Queensland and New South
Wales floods impacting supply, particularly in vine and sof
vegetables such as tomatoes, capsicums and broccoli. This was
partly offset by fruit deflation, particularly in bananas and grapes.
Supermarkets recorded packaged inflation of 1.6% for the year
and 4.3% for the fourth quarter. Raw material, commodity,
shipping and fuel costs remained the key driver to supplier input
cost requests received in the fourth quarter impacting inflation in
packaged.
Exclusive to Coles range revenue grew by 4.2% to $11.4 billion in
FY22. More than 1,300 new Coles Own Brand products were
launched during the year, including Coles’ liquid Breakfast on the
Move (BOM) range and Coles PerForm sports nutrition products
and supplements, ranging from performance meals and soups to
high protein bars and powders. Coles was the first major Australian
supermarket to launch a Certified Own Brand Carbon Neutral
Beef product. During the year, Coles Own Brand won 91 product
awards including nine consumer-voted Product of the Year awards
for product innovation across a range of products including Coles’
Ultimate 40% Choc Chip Cookies, DALEY ST Dark Ground Coffee,
Finest Beef Herbs and Spices Sausages and Coles Kitchen Green
Goddess Salad Kit.
With an Exclusive to Coles range of almost 6,000 products,
seasonal value campaigns and everyday pricing have continued to
support strong value offers across the year, with prices maintained
on many essential everyday items. This includes Coles Durum
Wheat Pasta (500 gms), Coles Tuna (85 gms), Coles Baked Beans
(420 gms) and Coles Italian Diced Tomatoes (400 gms) which
continue to be priced at ‘$1 or less’.
Customer satisfaction, as measured by Net Promoter Score (NPS),
was negatively impacted as a result of supply chain challenges
which impacted availability for customers, particularly in the
second half of the financial year.
Coles completed 50 store renewals during the year including 12
Format A, 10 Format B, 22 Format C and six Coles Local stores. For
the year, 11 new openings and 10 closures were completed. At the
end of FY22 there were 835 Supermarkets in the fleet.
Gross margin of 26.3% increased by 42 bps year-on-year with
strategic sourcing and Smarter Selling benefits such as supply
chain and loss prevention initiatives partially offset by COVID-19
costs incurred in the year.
Cost of doing business (CODB) as a percentage of sales increased
by 50 bps to 21.4% due to COVID-19 costs (approximately $160
million compared to approximately $90 million incurred in the
prior corresponding period), as well as higher costs related to the
increase in sales, higher fuel costs and underlying cost inflation.
Strategic investments continue to be made in eCommerce, IT and
digital. This was partially offset by Smarter Selling benefits. For
the full year, approximately $30 million of implementation
operating costs were incurred in relation to the Witron and Ocado
transformation projects.
EBIT of $1.7 billion increased by 0.8% with an EBIT margin of 5.0%.
Coles team member Linda from Greenacres in South Australia celebrated 50 years working with Coles in 2021.
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The expanded range of local wines at Coles Liquor (top lef); Local Brewing Co co-founder Sam Harris (top right) with White Peach Surplus Sour Product – an exclusive
craf beer at Liquorland and First Choice Liquor Market stores which is brewed using unsold supermarket bread and excess white peaches; the range of exclusive gins
at Coles Liquor (middle) and Mia Lloyd, General Manager Customer, Trade Planning & Loyalty for Coles Liquor, pours wine from the new eco-bottle. Photo credit: Simon
Schluter/The Age (bottom).
Liquor
Segment overview
| $m | FY22 | FY21 | CHANGE |
| Sales revenue | 3,613 | 3,525 | 2.5% |
| EBITDA | 278 | 276 | 0.7% |
| EBIT | 163 | 165 | (1.2%) |
| Gross margin (%) | 22.5 | 21.8 | 64bps |
| Cost of doing business (CODB) (%) | (17.9) | (17.1) | (79bps) |
| EBIT margin (%) | 4.5 | 4.7 | (16bps) |
Operating metrics (non-IFRS)
| FY22 (52 WEEKS) |
2H22 (25 WEEKS) |
1H22 (27 WEEKS) |
FY21 (52 WEEKS) |
|
| Gross retail sales1 ($ billions) | 3.6 | 1.6 | 2.0 | 3.5 |
| Gross retail sales growth1 (%) | 2.4 | 2.1 | 2.6 | 6.8 |
| Comparable sales growth (%) | 2.1 | 2.4 | 1.8 | 6.3 |
| eCommerce sales2 ($m) | 165 | 71 | 95 | 111 |
| eCommerce penetration2 (%) | 4.6 | 4.4 | 4.8 | 3.1 |
| Net Promoter Score3 (point increase /(decrease)) | (0.8) | (2.6) | 1.2 | 4.9 |
| Sales density per square metre4 (MAT $/sqm) | 16,354 | 16,354 | 16,315 | 16,287 |
1 Gross retail sales comprise retail sales on a gross basis before adjusting for concession sales and the cost of Flybuys scheme points.
2 eCommerce sales exclude Liquor sold through coles.com.au which is reported in Supermarkets’ eCommerce sales. FY21 eCommerce sales and penetration has been
restated to reflect a reclassification of fulfilment income to Sales revenue (previously reported within Other Income).
3 Net Promoter Score is based on Liquorland NPS results.
4 Sales density per square metre is on a moving annual total (MAT), calculated on a rolling 52-week basis.
Highlights
Liquor sales revenue was $3.6 billion for the year, an increase of
2.5% on the prior corresponding period.
Sales revenue growth was delivered as a result of solid trading
across the year, particularly in the first half during the lockdowns
in New South Wales, Victoria and the Australian Capital Territory
when on-premise venues were closed. The Christmas and Easter
trading periods were strong. Liquorland was the strongest
performing banner with 191 Black and White Liquorland renewals
completed, providing customers with an enhanced range of local
wines, craf beers and boutique spirits. At a category level, ReadyTo-Drink and Spirits were the key drivers of growth.
Customer satisfaction, as measured by NPS, was impacted by
availability challenges early in the second half as a result of Omicron
and flood impacts on supply chain. NPS began to recover during the
fourth quarter as a result of a focus on team and availability metrics.
eCommerce sales grew by 49% with penetration of 4.6% in FY22,
compared to 3.1% in the prior corresponding period. During the
year, capacity was increased through the continued roll out of
Click & Collect, the expansion of on-demand services which is
available in more than 400 stores while 1,400 products were
added to the online range.
Trusted value for customers was delivered through lowering
prices for longer with more than 2,000 Price Drops across
Liquorland and First Choice Liquor Market, reflected in improved
value metrics during the year. Exclusive Liquor Brand (ELB) and
local product contribution grew, delivered through improved
range planning and market-leading sustainability innovations
such as the 100% recyclable eco-bottle wine range launched
during the year. The ELB portfolio continues to be recognised with
more than 420 awards received during the year including ELB
brand Smithy’s winning the Australian Lager of the Year at the
Melbourne International Beer Competition.
Liquor completed 208 renewals during the year including nine Vintage
Cellar Evolution stores, in addition to the 191 Black & White Liquorland
renewals. For the year, 16 new openings and 12 closures were
completed. At the end of the period there were 933 Liquor stores.
Gross margin of 22.5% increased by 64 bps largely due to the
strong performance in ELB and local ranges.
CODB as a percentage of sales increased by 79 bps to 17.9% largely
due to investments in customer service and team capability, as
well as transformation costs in relation to IT systems. COVID-19
costs in relation to team member absenteeism and recruitment
also increased throughout the second half. Depreciation and
amortisation increased by $4 million as a result of investments in
renewals and new stores.
Liquor EBIT of $163 million decreased by 1.2% for the year driven by
increased depreciation and amortisation, with an EBIT margin of 4.5%.
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Express Other
Highlights
C-store sales revenue was $1.1 billion for the year, a decrease of
5.0% on the prior corresponding period.
C-store sales growth was impacted by lower forecourt traffic due
to lockdowns in New South Wales, Victoria and the Australian
Capital Territory in the first half, while reduced mobility from the
Omicron variant and flood events in New South Wales and
Queensland impacted sales in the second half. The cycling of
strong tobacco sales in the prior corresponding period also had
an impact. Excluding tobacco, c-store sales grew by 0.9% in FY22
with strong growth in food-to-go, including coffee and hot fast
food, as well as drinks following recent range review activity.
During the year, Express completed the successful national rollout of the Shell Coles Express App, providing customers with Pay
at Pump and Store Locator functionality as well as monthly c-store
offers.
Fuel volumes declined by 4.7% during the year with comparable
fuel volumes declining by 3.8% driven by COVID-19 lockdowns,
the flood events in New South Wales and Queensland as well as
record-high fuel prices in the second half. Average weekly fuel
volumes of 54.4mL per week were recorded during the year. For
the fourth quarter, average weekly fuel volumes were 56.9mL per
week.
For the year, one Express site was opened and seven closed,
taking the total network to 711 sites.
Gross margin declined by 12 bps to 52.3% largely due to the
declining fuel volumes. CODB as a percentage of sales of 48.5%
increased by 184 bps largely due to lower sales, however overall
CODB reduced relative to the prior corresponding period as a
result of a strong focus on cost control. Express EBIT for the year
was $42 million with an EBIT margin of 3.7%.
Segment overview
| $m | FY22 | FY21 | CHANGE |
| Sales revenue | 1,132 | 1,192 | (5.0%) |
| EBITDA | 181 | 207 | (12.6%) |
| EBIT | 42 | 67 | (37.3%) |
| Gross margin (%) | 52.3 | 52.4 | (12bps) |
| Cost of doing business (CODB) (%) | (48.5) | (46.7) | (184bps) |
| EBIT margin (%) | 3.7 | 5.7 | (196bps) |
Operating metrics (non-IFRS)
| FY22 (52 WEEKS) |
2H22 (25 WEEKS) |
1H22 (27 WEEKS) |
FY21 (52 WEEKS) |
|
| Convenience store (c-store) gross retail sales1 ($) | 1,201 | 586 | 615 | 1,262 |
| C-store gross retail sales growth1 (%) | (4.8) | (1.0) | (8.1) | 7.4 |
| Comparable c-store sales growth (%) | (3.9) | 0.1 | (7.4) | 6.8 |
| Weekly fuel volumes (mL) | 54.4 | 56.4 | 52.6 | 57.1 |
| Fuel volume growth (%) | (4.7) | (4.2) | (5.2) | (4.0) |
| Comparable fuel volume growth (%) | (3.8) | (3.1) | (4.4) | (5.4) |
1 Gross retail sales comprise retail sales on a gross basis before adjusting for concession sales and the cost of Flybuys scheme points. Fuel concession sales are
excluded from Express gross retail sales on the basis Coles does not control retail pricing.
Glossary of terms
Average basket size: A measure of how much each customer
spends on average per transaction
bps: Basis points. One basis point is equivalent to 0.01%
Cash realisation: Calculated as operating cash flow excluding
interest and tax, divided by EBITDA (excluding significant items)
CODB: Costs of doing business. These are expenses which relate
to the operation of the business below gross profit and above EBIT
Comparable sales: A measure which excludes stores that have
been opened or closed in the last 12 months and excludes
demonstrable impact on existing stores from store disruption as a
result of store refurbishment or new store openings
EBIT: Earnings before interest and tax
EBITDA: Earnings before interest, tax, depreciation and amortisation
EPS: Earnings per share
Exclusive to Coles: Refers to the portfolio of product brands that
are exclusively available at Coles, and includes Coles Own Brands
and Exclusive Proprietary Brands. Coles Own Brands refers to the
portfolio of product brands owned by Coles (e.g. Coles Finest, KOi,
Coles Nature’s Kitchen). Exclusive Proprietary Brands refers to the
portfolio of product brands owned by suppliers but exclusive to
Coles (e.g. La Espanola)
Gross margin: The residual income remaining afer deducting cost
of goods sold, total loss and logistics from sales, divided by sales
revenue
Gross retail sales: Comprises retail sales on a gross basis before
adjusting for concession sales and the cost of Flybuys scheme
points. Fuel concession sales are excluded from Express gross
retail sales on the basis Coles does not control retail pricing
IFRS: International Financial Reporting Standards
Leverage ratio: Gross debt less cash at bank and on deposit,
divided by EBITDA
MAT: Moving Annual Total. Sales per square metre is calculated as
sales divided by net selling area. Both sales and net selling area
are based on a MAT, calculated on a rolling 12 months of data basis
Net Promotor Score: Metric used to measure customer advocacy,
derived from an externally facilitated survey with a nationally
representative sample. The point movement reported represents
the NPS measured over the relevant period relative to the prior
corresponding period. Liquor NPS is based on Liquorland NPS
results
Perfect Order Rate: The percentage of total home delivery orders
(excluding Click & Collect) that were fulfilled on time without any
missing items or substitution
Retail calendar: A reporting calendar based on a defined number
of weeks, with the annual reporting period ending on the last
Sunday in June
Significant items: Large gains, losses, income, expenditure or
events that are not in the ordinary course of business. They
typically arise from events that are not considered part of the core
operations of the business
TRIFR: Total Recordable Injury Frequency Rate. The number of
lost time injuries, medically treated injuries and restricted duties
injuries per million hours worked, calculated on a rolling 12-month
basis. TRIFR includes all injury types including musculoskeletal
injuries
Coles reported other net costs of $51 million for the year. Other
includes corporate costs, Coles’ 50% share of Flybuys’ net result
and the net gain or loss generated by Coles’ property portfolio.
Corporate costs of $82 million were incurred for the year, broadly
flat on the prior corresponding period costs of $83 million. Coles’
50% share of Flybuys’ net result was a $7 million loss, due to
increasing investment in technology and data, while earnings
from property operations were $38 million for the year compared
to $27 million in the prior corresponding period.
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Update on Witron and Ocado
transformation projects
Witron
Coles’ commitment towards modernising its supply chain led to
the partnership in October 2018 with Witron to develop two
automated DCs located in Redbank Queensland (Qld) and Kemps
Creek New South Wales (NSW).
Our investment in this exclusive partnership with Witron, the
automated DC market leader delivering over 70 facilities globally,
is a foundation of our sustainable strategic differentiation by
delivering long-term structural cost advantage through
automation, data and technology.
The benefits of the automated DCs include:
• Safer working environments with improved service at a lower
cost
• Reduced lead time to deliver better availability, with both sites
providing full case pick ambient range in each state
• Double the volume on half the footprint and approximately
two-thirds operating costs of a standard site
Construction and installation of the automated DCs is progressing
well despite the challenges, in particular of COVID-19 and
disrupted global transport and supply chains. These factors,
together with elevated commodity prices and higher labour costs,
have increased the estimated capital investment over the four
and a half year period, inclusive of contingency, to approximately
$1,040 million from the previously advised $950 million.
The facilities are due to be commissioned within the previously
communicated timeframes. The Redbank Qld facility in 3Q23 and
Kemps Creek NSW in 3Q24.
Ocado
Our partnership with Ocado, the world’s leading technology
provider in automated single pick fulfilment technology and
home delivery solutions, is a core foundation of Coles’ strategic
differentiator to ‘win in food and drink with a unique omnichannel
offering’.
The Ocado program is focused on NSW and Victoria and includes:
• Seamless digital customer experience with a unified App and
website
• Improved product availability and freshness with delivered in
full on time expected to be industry leading
• Greater product range. The CFCs will open with an expanded
range compared to our current average home delivery store
and growing to approximately 40,000 SKUs over time
(approximately double our existing home delivery store)
• Increased network capacity with spokes to extend the CFC
catchment areas for efficient last mile delivery
Coles’ eCommerce sales are now 2.7 times the level at the time of
entering our partnership with Ocado in March 2019. The rate of
increase is higher than previously anticipated, largely driven by
COVID-19. Our strategic plans have adapted to meet this significant
uplif in demand and include significant investment in digital
platforms and nationwide capacity.
As previously advised, as a result of Coles’ significant investments
in customer experience and the rapid acceleration in eCommerce
revenue and penetration since the onset of COVID-19, Coles and
Ocado agreed to update arrangements regarding how the Ocado
Smart Platform (OSP) will integrate with these new initiatives.
Coles will manage the online store and web presence for the
intake of orders, and Ocado will provide OSP automated fulfilment
functionality through the CFCs and store pick channels, as well as
last-mile solutions.
At the time Coles announced the Ocado partnership in March 2019
it expected capital expenditure, inclusive of upfront Ocado fees,
to be in the range of $130-150 million over the four-year
development and construction period.
In order to maximise the potential of the CFCs, in addition to the
significant eCommerce investments, Coles has enhanced the
customer offer to include features such as onsite bakeries and
fresh cut produce rooms (a world first) and expanded the
catchment zones within the hub and spoke model.
These investments, together with COVID-19 schedule delays,
expanded scope and integration costs have increased the
estimated total capital expenditure of the program to
approximately $330 million, inclusive of contingency and upfront
fees.
The automated CFCs are due to open within the previously
communicated timeframes. The NSW facility is due to open in
1Q24 and the Victorian facility in mid FY24.
The Witron and Ocado transformation projects are the
biggest automation projects in Coles’ history.
Implementation capital and operational expenditure
In FY23 Coles expects to spend approximately $310 million in
capital expenditure in relation to Witron and Ocado and this is
included within Group capital expenditure guidance. The
cumulative spend for both projects to the end of FY23 is estimated
to account for approximately 75% of the total project capital
expenditure.
FY23 and FY24 will be landmark years for Coles with the proposed
commissioning of the four automated distribution and customer
fulfilment centres. The estimated financial impact of the project
implementation operating expenditure, including the ramp-up,
dual running and transition costs partially offset by early benefits,
is detailed below.
| $m | FY23 | FY24 |
| Project implementation opex1,2 | ~(115) | ~(135) |
| Depreciation | ~(25) | ~(85) |
| EBIT Impact | ~(140) | ~(220) |
1 Previous guidance was up to $75m and $160m for FY22 and FY23 respectively.
Actual spend in FY22 was $30m. FY23 and balance of FY22 now re-phased in
line with project delivery.
2 Project implementation operating expenditure is inclusive of ramp-up,
dual running and transition costs (net of early benefits).
As previously communicated, net EBIT benefits from Witron are
expected to commence from FY25 and sales benefits from Ocado
are expected from FY24 as the customer fulfilment centres build
volumes.
Coles team members outside the Ocado customer fulfilment centre in Victoria.
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Looking to the future
To deliver the next phase of Coles’ Winning Together in our Second
Century strategy, we will focus on our strategic differentiators to
Win in food and drink with a unique omnichannel offering; Be a
great value exclusive brands powerhouse and destination for
health and convenience; Achieve long-term structural cost
advantage through Smarter Selling programs, including data,
automation and technology partnerships; Be Australia’s most
sustainable supermarket group together with our partnerships
and communities; and Deliver at pace through our engaged team.
To Win in food and drink with a unique omnichannel offering, we
will unify and digitise the customer experience through a unified
website and an enhanced shoppable Coles App. We will continue
to roll out Click & Collect locations and expand the home delivery
network, including a focus on our immediacy offer with Click &
Collect Rapid (order to pick up in 90-minutes) and same day home
delivery. In our physical store network, new stores and renewals
of existing stores will continue, with a particular focus on the
popular Coles Local format and, in Liquor, Black and White
Liquorland and Vintage Cellar Evolution stores.
With inflation continuing to place pressure on households, Coles
will continue to deliver trusted value through our Exclusive to
Coles portfolio. This will be enhanced by focusing on value, new
product development and innovation, and continuing to provide
a superior range of ready meals, supporting our convenience
strategy.
The ongoing headwind of rising inflation underscores the
importance of our Smarter Selling cost reduction program, and
the commissioning commencement of three of our four Witron
automated distribution centres and Ocado customer fulfilment
centres in FY24 will allow us to drive future efficiencies while
delivering an enhanced offer to inspire customers. The focus will
remain on the final year of our Smarter Selling program where we
are on track to deliver under our four-year program approximately
$1 billion of benefits by the end of FY23.
Consistent with our ambition to be Australia’s most sustainable
supermarket, we will continue to focus on delivering on our
commitments under the Together to Zero and Better Together
focus areas of our Sustainability Strategy. While we have already
secured a path to 100% renewable electricity by the end of FY25
through signing the last of the agreements needed to meet our
target in FY22, we will continue to invest in solar and energy
efficiency across our network. We have set a target to divert 85%
of solid waste from landfill by FY25 and are working towards 100%
recyclable, reusable or compostable Coles Own Brand and Coles
Liquor Own Brand packaging in Australia by FY25.
We know the importance of having an engaged and future-focused
workforce that can deliver on our long-term strategic priorities.
To enable this, we are continuing to invest in the learning,
development and careers of our team members to continue to
grow engagement across the workforce. Our programs to improve
the team member experience through digitisation of store
support centre processes and improved workforce planning
within operational teams facilitates delivery at pace and
productivity.
FY23 will be another year of significant investment for Coles as we
continue to commit resources and capital to transformational
projects which will underpin our customer experience and
efficiency. Capital expenditure is expected to be between $1.2
and $1.4 billion, inclusive of Witron and Ocado projects.
We will prioritise capital investment, people and technology to
accelerate our progress. We will monitor emerging trends,
including macro-economic and consumer trends, to ensure we
deliver the strategic differentiators in FY23.
Significant progress has been achieved in FY22,
despite a highly disruptive operating environment.
Risk management
Our operating environment continues to rapidly evolve,
resulting in changes to the risks and uncertainties that we face.
We regularly review risks and mitigations, so we can support the
delivery of our purpose and strategy and respond to challenges
faced by Australian businesses, the retail industry, our team
members, and the communities we serve.
During the year, Coles has continued to identify and manage risks
in accordance with the Coles Risk Management Framework. The
design of this framework is based on ISO 31000:2018 Risk
management – Guidelines (‘ISO 31000’), which provides an
internationally recognised set of principles and guidelines for
managing risks in organisations. Further information about our
Risk Management Framework will be available in Coles’ Corporate
Governance Statement.
Through application of the Coles Risk Management Framework,
we have identified material strategic, operational, and financial
risks that could adversely affect the achievement of our future
financial prospects. Each of these material risks is described in
the following table, along with key mitigation plans to manage
them. Although the risks have been described individually, there
is a high level of interdependency between them. This means an
increased exposure for one material risk can drive elevated levels
of exposure in other areas of our risk profile.
In addition to these material risks, our performance may be
impacted by risks that apply generally to Australian businesses
and the retail industry, as well as by the emergence of new
material risks not reported in the following table.
We also anticipate that the evolving nature of the COVID-19
pandemic and its impact on business and communities, as well as
the changing macro-economic and geopolitical environment, will
drive continual changes to Coles’ material and emerging risks
during the next financial year and beyond. We will therefore
continue to monitor and respond to further developments as
required, including ongoing review and enhancement of our risk
mitigation plans.
Coles graduates Santosh and Marz at the Kewdale Distribution Centre in Western Australia. Coles graduates receive risk management and safety training during the
graduate program.
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| Strategic risks | |
| Risk Description | Mitigations |
| Geopolitical and Macro-Economic | |
| Uncertainty in the global and domestic macro-economic and geopolitical environment, including as a result of changes in government (either state or federal) and global conflicts (such as in Russia and Ukraine), can expose Coles to supply chain disruptions and inflationary pressures. This includes price and cost pressures (e.g. commodities, labour, energy, fuel), the potential for interest rate rises, and changes in consumer spending and consumption choices. These can further result in an increased cost to operate, margin pressures, and reduction in sales. |
We aim to mitigate exposures to the geopolitical and macro-economic environment through: our corporate planning and financial performance review processes which incorporate scenario planning and consideration of future market conditions, adaptation of our customer offer to respond to changes in customer spending and consumption, diversification of products and services, maintaining a strong balance sheet to fund our operations and maximise financial performance, and execution of our Smarter Selling program with the objective of offsetting inflation and reducing costs while investing in the business. We engage with suppliers to support management of issues such as supply chain disruptions, product availability constraints and changing input costs. We also engage with government stakeholders so we can monitor and respond to government decisions, and changes in policies and regulations, including as a result of transitions in state or federal governments. |
| Pandemic | |
| If Coles does not monitor and respond to the evolution of COVID-19 or future pandemics, there is a risk of exposure to material financial loss including as a result of higher input costs; additional operational costs; delays in the execution of our strategic programs; reduction of sales and margins; legal and regulatory action; people, health and safety issues; and/or reputational damage. Furthermore, the pandemic exposes us to the significant and/or prolonged disruptions in the supply chain, store and online operations which can impact on our ability to serve our customers and the community. |
Coles continues to manage the evolution of the COVID-19 pandemic in accordance with government and health advice, as well as our Group Response Policy and Program which sets out the governance arrangements, accountabilities, and processes for crisis management and business continuity, and our Coles SafetyCARE System which is the safety management system that provides a framework for Coles to look afer the health, safety and wellbeing of our team members, customers, contractors, suppliers and visitors. The Coles Group Response Program is managed by the Head of Response, with direct oversight and consultation of critical decisions by Group Executive. This includes for example, the decision taken during FY22, following a comprehensive risk assessment, to mandate vaccination against COVID-19 for all Coles team members in line with government health advice in relation to the provision of a safe working environment. Critical response decisions are elevated to the Board, when required. Business continuity plans are in place for critical functions and activities across our operations including merchandising, supply chain and store and online operations. These plans have been invoked on multiple occasions when required during our response to the COVID-19 pandemic, and continue to be refined given the evolving nature of the pandemic. This includes ongoing assessment of risks including resourcing challenges, long-term impacts, and the potential spread of new COVID-19 variants. |
| Changing consumer behaviour, competition and digital transformation | |
| Consumer behaviour and expectations are changing in diverse and complex ways, including as a result of the evolving COVID-19 pandemic and macro-economic environment. Changes include increased focus on safety measures, reliance and demand on online shopping and digital channels, increased personalisation, demand for convenience, and enhanced consciousness about value and consumption choices. The competitive environment is also changing, with an increased focus on digital, automation, and e-commerce to deliver efficiency and a personalised and seamless experience for customers across both our online and offline channels. If Coles fails to adequately respond to changing customer behaviours and expectations and competitive pressures, it could result in loss of market share and, ultimately, adverse margin impacts, reduced customer retention and impact to share price or value. |
Coles regularly monitors customer sentiment, best practice global retailers, local and international retail trends, and customer insights and research, so we can quickly respond to changes in customer behaviours. Key programs to respond to changing consumer behaviours and expectations and the competitive environment, and to build on opportunities, are embedded in the implementation of our strategy including under the Inspire Customers pillar and through automation of the supply chain. To alleviate cost of living pressures, we deliver trusted value to our customers through everyday low pricing across a broad range of products, a program of weekly specials and loyalty offers. In addition, we aim to lower the cost of living for Australians and provide an innovative and unique offer through our Exclusive to Coles range. We continue to enhance our digital customer experience including through Coles Online, our digital catalogue, the coles.com.au platform including coles&co, Click & Collect Rapid and the Coles Plus subscription service. Our shoppable Coles App enables customers to order through the app, view the catalogue, and build their shopping list so they can map out their shopping experience. During FY22 we strengthened the Flybuys loyalty program with the addition of Bunnings and Officeworks, providing members with new opportunities to earn and redeem points, and implemented a new operating model that will enable personalised offers for customers. We continue to invest in programs which will further personalise the shopping experience for our customers while protecting their data security and privacy. We also continue to invest in new data analytics tools and platforms to give suppliers and category decision makers fast and detailed insights across products, stores, geographies and sales channels. |
| Strategic program execution | |
| Inability to deliver our strategic programs on time or within budget with the expected benefits, could result in loss of market share, variability in Coles’ earnings, and inability to meet shareholders expectations. Changes in scope or delays within our strategic programs and projects, may occur due to disruptions to project inputs and services, including as a result of the ongoing COVID-19 pandemic and evolving geopolitical and macro-economic conditions, and to critical third parties that we rely on to deliver our strategic programs of work. Programs may also be impacted if critical skills and talent required to execute are not available. |
Delivery of our strategic programs is determined by the effective implementation of each of the three pillars of our strategy: Inspire Customers, Smarter Selling and Win Together. Furthermore, the execution of elements of our strategy is supported by third-party strategic partnerships including Witron (automated distribution centres), and Ocado (enhanced online capability). We also have joint ventures with Wesfarmers (Flybuys) and Australian Venue Co. (Queensland Venue Co. Pty Ltd), and an alliance with Viva Energy (Coles Express). In addition, Coles may undertake future acquisitions and divestments, and enter into other third-party relationships, so we can more effectively execute our strategy. We have governance structures and processes in place to oversee, manage and execute strategic programs of work, including with Witron and Ocado. Projects and programs are regularly reviewed in detail to monitor progress of program delivery, costs and benefits, and the allocation of resources. We undertake post-implementation reviews to assess project outcomes relevant to the business case, and to identify lessons-learned to be applied for future projects. The Board reviews and provides oversight of key programs throughout the year. |
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| People availability and talent | |
| With low unemployment rates and inflation placing pressure on wages, Coles faces competition to attract and retain skilled team members who are imperative to the execution and delivery of our strategic programs, digital transformation, and broader business operations and performance. |
Coles is one of Australia’s largest private-sector employers. Our Great place to work strategy sits under the Win Together pillar and focuses on strengthening team member engagement, which is measured through our mysay team member engagement survey. ‘A team that is better together’ is also a key focus area of our Better Together pillar. Through this focus area we seek to be an employer of choice and make Coles a workplace in which everyone feels like they belong so that we can all live healthier and happier lives. We run targeted recruitment campaigns where competition for talent is high, including to identify key skills and experience needed to deliver our strategy (e.g. digital and technology segments). These recruitment campaigns complement our standard hiring practices, and existing graduate and industry-based learning programs. We have in place action plans targeted on retention, and development programs to support career growth of key talent. Regular discussions on talent and succession planning are held with Group Executive and the People and Culture Committee. Our approach to performance enables team members to set objectives related to our strategy. It also provides an opportunity to seek and give feedback, and celebrate progress and achievements. We have a number of recognition programs in place, including our Good Things Awards. The People and Culture Committee is responsible for reviewing and overseeing the Group’s key people and organisational culture strategies, as well as reviewing talent management within the Group generally. It is also responsible for reviewing the appropriateness of our remuneration and incentive frameworks, and recommends to the Board any changes to the overall Group policy regarding remuneration including incentives. The Board maintains overall accountability for approving the Group’s remuneration policies. |
| Climate change and the environment | |
| Climate change presents an evolving set of risks and opportunities for Coles, and has the potential to contribute to, and increase, the exposure of other material risks. These include increased frequency and intensity of extreme weather events and chronic climate changes that can disrupt our operations and compromise the safety of our team members, customers, supply chain and the food we sell. Climate change can also lead to changes to government policy, law and regulation, which can result in increased costs to operate and the potential for litigation. An inability to reduce our environmental impact and meet our external sustainability commitments could also result in reputational damage, diminished access to capital, loss in market share, and fines and penalties. |
Coles had previously developed a roadmap to help us to align with the recommendations of the Task Force on Climate-related Financial Disclosures. During FY22, we continued to implement actions identified within our roadmap and make progress towards achieving our Together to zero emissions commitments. This included securing a path to achieving 100% renewable electricity for Group operations by the end of FY25 and continuing to upgrade to natural refrigerants which have close to no global warming potential compared to synthetic refrigerant gas. We also continued to analyse transition and physical climate change risks and opportunities, including through scenario analysis and a physical site assessment of a select portfolio of assets. Further climate change risk analysis will continue in FY23. Additional information on climate change risks and opportunities is set out in the Climate Change section. Building on work already undertaken, we have commenced an environmental impact review of Coles Own Brand products, mapping potential impact against three key areas: deforestation, water security and soil health. The results of this review will form a baseline assessment of these areas, and be the foundation of a future action plan to reduce our environmental impacts and help our customers make more informed choices. Our Sustainability Strategy highlights Coles’ commitments across the Together to Zero and Better Together pillars of our strategy. The Together to Zero pillar of our Sustainability Strategy incorporates targets to reduce our impact on the environment, specifically emissions, waste and hunger. Our publicly available Climate Change Position Statement sets out our approach to climate change. The Board oversees the effectiveness of Coles’ environment, sustainability and governance policies and retains ultimate oversight of material environmental and sustainability risks and opportunities, including those related to climate change. The Board has endorsed the Sustainability Steering Committee as the management group responsible for overseeing the Group-wide identification and response to sustainability issues, including climate change. It is chaired by the Chief Operations and Sustainability Officer, a member of the Executive Leadership Team, who reports to the Chief Executive Officer. The Chief Executive Officer has ultimate responsibility for sustainability at Coles. |
| Climate change and the environment (continued) | |
| The Sustainability Steering Committee is supported by other steering committees, subcommittees and working groups. These include the Human Rights Steering Committee, the Better Together Council, the Climate Change Subcommittee and the Coles Express and Coles Liquor sustainability working groups. Progress against the Sustainability Strategy is reported annually in the Coles Group Sustainability Report. |
| Operational risks | |
| Risk Description | Mitigations |
| Industrial relations | |
| As we execute our strategy, workforce changes may lead to industrial action and/or disruptions to our operations, which can result in increased costs, litigation and financial impacts from reputational damage. The impact of COVID-19, along with planned changes in our supply chain operations, has heightened our exposure to this risk. |
Coles has in place dedicated Employee Relations resources that are responsible for monitoring and responding to industrial relations risks and issues. Key activities include implementation of appropriate enterprise agreements and employee relations strategies; maintaining and building strong working relationships with unions and industry organisations; and constructively liaising with our team members, third-party suppliers and transport and logistic service providers. The renegotiation of enterprise agreements is managed and business continuity plans are in place to mitigate disruption to operations if industrial action occurs. |
| Supply chain resilience | |
| Supply chain disruptions can result in an inability to supply to customers, loss of market share, price volatility and increased costs. Potential disruptions can occur due to extreme weather events and changes in climate, and in domestic and international government and policy and regulation, as well as geopolitical factors. This includes the Russia Ukraine conflict, the evolving COVID-19 pandemic, inflation and increasing cost of inputs, and disruptions to staffing in our stores, distribution centres, and sites (Coles and suppliers). |
Our response includes business continuity plans to manage the supply chain and delivery of goods to stores during extreme weather and business disruptive events. Our plans include consideration of people, resources, physical sites, information technology and digital requirements, and critical third parties required to continue to operate and serve our customers and community. We also monitor the external environment for changing circumstances and disruptive events, and undertake supplier diversification and sourcing of alternative supply arrangements, and strategic category planning to provide a category-by-category approach to business continuity. In response to challenges such as COVID-19 and floods, we scale up production and distribution of substitute goods, undertake rapid onboarding of new suppliers, manage the business’ promotional plans to support availability and simplify operations, and introduce purchase limits where required. Medium and longer term international and domestic supply security risks and mitigations are assessed on an ongoing basis as part of our strategic category planning program. We also continue to analyse Coles’ supply chain resilience in key food categories, including meat, dairy and seafood. We have expanded our milk supply chain to purchase milk directly from dairy farms in Tasmania, joining Victoria, Southern and Central New South Wales, South Australia and Western Australia. Coles continued to offer farmers the option of longer term agreements, providing them with greater confidence over their future income and securing ongoing supply of fresh milk for customers. Through the Coles Sustainable Dairy Development Group (CSDDG), we invest directly in farm-related sustainability projects in consultation with dairy farmers. During FY22, support through CSDDG also included investment in all of our contracted farms in Southern and Central New South Wales which had been impacted repeatedly by floods and heavy rains. |
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| Health and safety | |
| The safety of our team, customers, third parties and contractors is paramount to Coles. We employ and engage an extensive and diverse work-force, including third parties, with high volumes of people interactions daily. This may result in risk of fatality, life-threatening injuries or transmission of disease to team members, customers, suppliers, contractors or visitors, due to potentially unsafe work practices, accidents or incidents. Furthermore, the ongoing COVID-19 pandemic can have adverse impacts to team member health and wellbeing (including mental health) and introduces the potential for loss of key personnel due to infection. |
Our detailed Health, Safety and Injury Management system (SafetyCARE) is supported by a team of experienced safety professionals throughout our network. SafetyCARE’s performance is measured through a range of indicators and the effectiveness of the system is assessed through a verification program. A rolling five-year safety and wellbeing plan focuses on Safe Sustainable Leadership, Smarter Safety, Healthy Teams and Mind Your Health. Performance is reported to, and monitored by, the Board at every meeting, in addition to reporting of critical safety incidents if and when they occur. The health and safety of our customers and team members underpins our response to the COVID-19 pandemic. Coles adopts enhanced hygiene practices based on recommendations from the Australian Government through Safe Work Australia and on information from the federal Department of Health, and state and territory governments and departments of health, as well as other applicable regulatory bodies. A large number of measures have been implemented during FY22, and are adapted to comply with changing regulations. These measures include programs to keep our customers and team members safe. They incorporate: social distancing measures, sanitisation stations, masks, additional cleaning and security, contact tracing and reporting process for team member infections, rapid antigen testing of team members in distribution centres and production facilities, modified work practices (stores, distribution centres and support centres) to reduce the risk of COVID-19 infection onsite, and the implementation of large-scale mental health and wellbeing programs for our team members. During FY22, following a comprehensive risk assessment and consultation process, Coles implemented a COVID-19 vaccination policy requiring all team members to be vaccinated by 31 March 2022 unless medically exempt. |
| Product and food safety | |
| Product and food safety and quality is critical for Coles. Serious illness, injury or death are the most severe potential risks from compromised product or food safety. Loss in customer trust, reputational damage, loss in sales and market share, regulatory exposure, and potential litigation could also occur. |
Coles has a food safety governance program in place that is overseen by an experienced technical team. The program is composed of targeted policies and procedures, including well-established food recall and withdrawal processes, specific supplier requirements for different food categories (e.g. chilled versus ambient) and a supporting assurance program which aims to ensure key controls are operating and effective. We also have a Product Safety Program, which covers non-food products and works closely with our suppliers to support them to comply with relevant mandatory product safety and labelling standards, and to meet consumer guarantees under the Australian Consumer Law. Our Product and Food Safety Committee oversees continuous improvement of food and product safety risks and issues across Coles. |
| Third-party management | |
| An inability to successfully manage and leverage our critical and strategic third-party relationships, or a critical failure of a key supplier or service provider, may expose Coles to risks related to compromised safety and quality, misalignment with ethical and sustainability objectives, disruptions to supply or operations, unrealised benefits, and legal and regulatory exposure. |
Coles has due diligence processes in place to assess the adequacy and suitability of key suppliers, service providers and strategic partners in accordance with our requirements. We monitor and manage the quality and performance of key suppliers and strategic third parties throughout their engagement with Coles. Defined service level and key performance indicators are in place for key supply contracts. Risks are managed through contractual protections. Our business continuity plans include consideration of critical third parties required to continue operating and serving our customers and community in the event of a business disruption. Third-party management (procurement: non trade) is governed by the Third Party Management Policy. It includes requirements for sourcing and contract management and the application of our SAP Ariba technology platform for sourcing, contracting, buying and invoicing. During FY22, enhancements were made to the third-party risk management process. Coles continues to strengthen our third-party risk management including contract management and supplier management requirements for procurement: non trade engagements. |
| Legal and regulatory | |
| The diversity of our operations necessitates compliance with extensive legislative requirements at all levels of government. This includes corporations law, competition and consumer law, health and safety, industrial relations, employment, product and food safety, environment, council by-laws, privacy, measurements and bio-security. Non-compliance with laws and regulations, could expose Coles to loss of license to operate, substantial financial penalties, reputational damage, a deterioration in relationships with regulators, class action or other litigation and additional regulatory changes that may adversely impact the execution of our strategy and result in increased cost to operate. Furthermore, where Coles is a party to litigation, it can involve reputational damage, financial costs, and high investment of Company resources and time. |
Coles has in place a Compliance Framework, which is based on AS ISO 37301:2021 Compliance management systems – Guidelines, and which sets out the standards, requirements and accountability for managing regulatory compliance obligations across the Group. The Compliance Framework is subject to continual review and assurance, including through Coles’ internal audit process. We also maintain relationships with regulators and industry bodies and actively monitor new and impending legislative and policy changes so we can respond accordingly. Our legal teams work in partnership with our compliance teams to monitor and manage legal issues, matters, claims and disputes. We are supported by pre-agreed panel arrangements with external legal firms and assess potential litigation claims to understand loss potential. Coles is currently implementing action plans, including the update of existing policies and procedures, to comply with newly introduced obligations for cyber incident reporting and registration of our critical assets, in line with the Security of Critical Infrastructure Act 2018 (Cth) (SOCI Act). Some of these obligations took effect from July 2022, and have been introduced by Australia’s Department of Home Affairs to uplif the security and resilience of Australia’s critical assets. |
| Ethical sourcing | |
| Failure to source product or conduct our business in a manner that complies with our Coles Ethical Sourcing Policy and relevant legal requirements across Australia and the countries we source from, can impact worker safety, wellbeing or living conditions. It can also result in material reputational damage, loss in consumer confidence and market share, regulator fines and penalties, and adverse financial performance. |
Our Ethical Sourcing Policy and supplier requirements are based on internationally recognised standards and establish the minimum standards for our suppliers. These include the Ethical Trade Initiative (ETI) Base Code, International Labour Organisation (ILO) Declaration on Fundamental Principles and Rights at Work, United Nations Guiding Principles, Children’s Rights and Business Principles (UNICEF, UN Global Compact and Save the Children) and the Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises. Coles’ Ethical Sourcing Program takes a risk-based approach which defines the level of due diligence and monitoring that applies to suppliers based on risk exposure. It also includes a requirement for ethical audits of selected suppliers. The program includes Coles Own Brand and fresh produce suppliers, Coles Own Liquor Brands, and procurement: non trade suppliers. During the financial year, following a third-party review, we updated our Ethical Sourcing Key Risk Indicators to focus on timely management action in response to ethical audit non conformances arising throughout our supply chain rather than a focus on the number of non-conformances arising from audits. This change recognised that our increasing audit volume will result in more non-conformances and that our responsiveness to these findings should be the focus of measurement. We also developed and implemented a framework designed to work with supplier sites to understand the root causes of excessive working hours non-conformances and drive continuous improvement through the development of action plans. This framework has also been subject to independent third -party review. We had a strong focus on risk review activities in areas including tobacco, seafood, third-party labour hire, meat processing and the gig economy. We continued to focus on meaningful collaborations including our partnership with the Ethical Retail Supply Chain Accord, re-signing the Accord for an additional three-year term, and hosting a worker education event for farm workers in the Mareeba region. In addition, we entered a new relationship with the Indirect Supply Alliance which incorporates businesses from across the globe, sharing knowledge and creating best practice initiatives for protecting human rights in the procurement supply chain. Coles’ whistle-blower hotline and dedicated supply chain wages and conditions hotline enable reporting of unethical, illegal, fraudulent or undesirable conduct. The Board receives reports on material incidents reported under the Whistleblower Policy and metrics on disclosures made under the Policy. Additional information on Coles’ Ethical Sourcing Program can be found in our 2022 Modern Slavery Statement. |
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| Information technology, resilience, data and cyber security | |
| A failure or disruption to our information technology applications and infrastructure, including a cyber-security event, could impede the processing of customer transactions, or limit our ability to procure or distribute stock for our stores or otherwise impact the operations of our business. Cyber-security threats include ransomware, product vulnerabilities, business email compromise, and phishing scams, resulting in system compromise. Many factors including increased flexible working arrangements, our growing external digital footprint, increased reliance on technology, volume of third-party providers, geopolitical unrest and growing sophistication of cyber criminals, have resulted in Coles operating in an ever-increasing cyber-security threat environment. Furthermore, our technology and data-rich environment exposes us to the risk of unauthorised disclosure of confidential, financial, or personal information. This may result in loss of consumer confidence, loss in market share, regulatory fines and penalties, and reputational damage. |
We have a rolling five-year technology strategy and continuously monitor our technology for operational and cyber incidents. Our cyber-security roadmap is updated regularly and is independently assessed to help us make investment decisions that are commensurate with risks to the business, in line with similar businesses, and supports Coles’ business direction. We also have a cyber-security framework in place that we use to assess the maturity of our cyber-security capabilities and identify priority areas for improvement and further investment. Our cyber-security framework is aligned to the internationally recognised National Institute of Standards and Technology (NIST) Cybersecurity Framework. Additionally, our security policies and standards are aligned to ISO 27002:2013 Information technology — Security techniques (‘ISO 27002’), which provides an international code of practice for information security controls. Cyber security posture and mitigations are regularly reported to, and monitored by, the Board and Audit and Risk Committee. Our privacy and digital security policies, procedures, governance forums, education and awareness programs, and active membership with the federal government Joint Cyber Security Centre, help to strengthen our ongoing management of evolving data, privacy and cyber-security threats. We also regularly test and review our information technology infrastructure, systems, and processes to assess security threats and the adequacy of controls. Coles technology systems utilise dual data centres and cloud services to make sure critical business systems have high levels of redundancy with resiliency embedded across our ecosystem. We actively manage technology changes to reduce the risk of system instability, especially during peak trading periods. Our service management function is responsible for responding to incidents and coordinating recovery activities, should a disruption occur. In the event of a disruption, we have information technology recovery plans in place for critical systems, and dedicated plans to respond to data loss. We have also retained industry experts to be on call in the event of a cyber-security incident. Additional information on cyber incident reporting under the Critical Infrastructure legislation can be found in the Legal and Regulatory risk section. |
| Financial risks | |
| Risk Description | Mitigations |
| Financial, treasury and insurance | |
| The availability of funding and management of capital and liquidity are important requirements to fund our business operations and growth. In addition, we are exposed to material adverse fluctuations in interest rates, foreign exchange rates and commodity movements that could impact business profitability. We may also be exposed to financial loss from accidents, natural disasters and other events. |
Our Group Treasury function is responsible for managing our cash funding position and supporting the management of interest rate and foreign currency risks. Our Treasury Policy and related policies are approved by the Board, and govern the management of our financial risks, including liquidity, interest rates, foreign currency, commodity risks and the use of other derivatives. Further information is included in Note 4.2 Financial Risk Management of the Financial Report. Insurance is a tool to protect our customers, team members and the Group against financial loss, where applicable. In some cases, we choose to self-insure a significant proportion of the risk. This means that, in the event of an incident, the cost is covered from internal premiums charged to the business or the losses are absorbed. Our insurance function is responsible for managing both self-insurance and the purchase of external insurance where we determine this is prudent. We monitor our self-insured risks and have active programs to help us pre-empt and mitigate losses. We engage an external actuary to determine the self-insurance liabilities recognised in the Statement of Financial Position. In the Operating and Financial Review we have documented the trading and financial reporting impacts of the pandemic. |
Climate change
As outlined in our Climate Change Position Statement (available
at www.colesgroup.com.au) Coles supports the goals of the Paris
Agreement to keep global average temperatures to well below 2°C
above pre-industrial levels. We will also pursue efforts to limit the
temperature increase to 1.5°C above pre-industrial levels.
We understand that we have a responsibility to minimise our
environmental footprint, as well as to mitigate the environmental
and social impacts of climate change. We will do this by:
• building the resilience of our business, our community and our
value chain against climate-related impacts, both physical and
transitional (manage climate risks and opportunities);
• taking action to reduce and negate our climate impacts
(decarbonisation); and
• using our position and voice to play a constructive role in
building a roadmap aligned with the Paris Agreement
(influence climate action).
We are committed to engaging with our stakeholders, and
disclosing how we identify, assess and manage climate-related
financial risks and opportunities using the recommendations of
the Task Force on Climate-related Financial Disclosures (TCFD).
This is the third year we have reported using the TCFD
recommendations.
We have continued work commenced in FY21 to develop a climate
action plan aligned with the recommendations of the TCFD
(outlined below). The purpose of this plan is to help us to respond
effectively to the strategic implications of climate change
(informed by scenario analysis) and strengthen our disclosures to
meet stakeholder needs for relevant climate-related information.
| Summary of our progress in aligning with the TCFD | |
| TCFD theme | Our progress |
| Governance | |
| Disclose the organisation’s governance around climate-related risks and opportunities |
• The Board oversees sustainability issues (including climate change) with the support of the Audit and Risk Committee. • Accountability for overseeing the Group’s response to current and emerging environmental and social obligations, including in relation to risks and opportunities associated with climate change, sits with the management Sustainability Steering Committee. |
| Strategy | |
| Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning where such information is material |
• Climate-related risks and opportunities have been identified over the short term (0-2 years) to long term (5-10 years). • Scenario analysis has been further developed considering four plausible climate change scenarios, including a 2°C or lower scenario. • This analysis has informed the development of a climate action plan focused on managing Coles’ material climate-related risks and opportunities. |
| Risk management | |
| Disclose how the organisation identifies, assesses, and manages climate-related risks |
• Climate change is considered a material risk for the Coles Group. • Risk management processes for identifying, assessing and managing climate-related risks and opportunities are in place. |
| Metrics and targets1 | |
| Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material |
• Scope 1 and Scope 2 greenhouse gas emissions are disclosed, and Scope 3 emissions have been calculated. • A Scope 3 target has been approved by the Board and submitted to the Science Based Targets Initiative for validation. • Renewable electricity and waste diversion targets have been established. |
1 Data and target performance will be available in our 2022 Sustainability Report.
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Governance
The Board oversees and approves the strategic direction of the
Group and oversees the effectiveness of Coles’ sustainability and
governance policies and practices, including exposure to climate
change and other environmental and social risks and
opportunities.
The Audit and Risk Committee supports the Board in fulfilling its
responsibilities including evaluating the adequacy and
effectiveness of the Group’s identification and management of
environmental and social sustainability risks and its disclosure of
any material exposures to those risks including financial and nonfinancial risks.
The Sustainability Steering Committee is a management
committee and is responsible for overseeing Group-wide
identification and response to sustainability risks and
opportunities, including climate change. The committee reviews
progress of Coles’ Sustainability Strategy (which supports
delivery of the corporate strategy) and our Environment Policy
against agreed performance measures, including targets relating
to emissions reductions. It is chaired by the Chief Operations and
Sustainability Officer, a member of the Executive Leadership
Team reporting to the Chief Executive Officer. Its standing
members are leaders from functions with key sustainability
responsibilities including Risk and Compliance, Sustainability,
Coles Own Brand, People and Culture, Marketing, Company
Secretariat and Corporate Affairs.
The Chair of the Sustainability Steering Committee provides
regular updates to the Board and the Audit and Risk Committee
on sustainability risks, issues, and progress against commitments.
Standardised quarterly reporting, with performance monitoring
against our sustainability commitments, including those relating
to climate change, is also provided to the Board.
As climate change is recognised as having wide-ranging
implications for our business, our goals for managing and
mitigating climate-related risks are Group-wide. The Sustainability
Steering Committee coordinates this response through a specific
Climate Change Subcommittee that oversees Coles’ climate
change response and reports to the Sustainability Steering
Committee and its Chair.
The Subcommittee is chaired by the General Manager
Sustainability and Property Services and includes senior leaders
from key functions within Coles, such as Finance, Strategy, Risk
and Compliance, and Sustainability.
During FY22 the Board was presented with the scenario analysis
work described below, informing its review of the corporate
strategy. The Board reviews Coles’ corporate strategy annually
which includes considering whether it is responsive to the future
risks and opportunities arising from the low carbon transition.
Strategy
Managing climate risks and opportunities
This year we built on the initial scenario analysis work undertaken
in FY21 and continued to analyse transition and physical climaterelated risks and opportunities relevant to our business. A
physical climate risk assessment was undertaken incorporating a
high-level assessment of Coles’ national portfolio and a ‘deepdive’ assessment of six sites.
Scenario analysis
To enhance our management of climate-related risks and
opportunities, we have further developed our scenario analysis
work. The purpose of this analysis was to provide information on
future climate scenarios, as well as climate-related commodity
risks and opportunities. While scenario analysis is an important
planning tool for Coles, there are inherent limitations with
scenario analysis and scenarios do not constitute definitive
outcomes or probabilities. It is difficult to predict which, if any, of
the scenarios might eventuate and scenario analysis relies on
assumptions that may or may not prove to be correct.
With the assistance of external experts, four plausible and
divergent scenarios relevant to the Australian grocery and liquor
industry were selected. These were aligned with the
Intergovernmental Panel on Climate Change (IPCC) Shared
Socioeconomic Pathway scenarios.
The future scenario narratives were developed around the two
key themes identified as being likely to have the most impact and
create the most uncertainty for our industry – high or low levels of
‘government policy and intervention’ (domestically and globally)
and ‘sustainable technology innovation and adoption’.
Fify-five core commodities covering around 60% of Coles’
revenue were assessed against both physical and transitional
climate vulnerabilities. We subsequently undertook a ‘deep dive’
into 10 commodities with red meat and dairy, as well as
international commodities (such as cocoa and coffee), assessed
as being highly vulnerable to both physical and transition climate
risks. This analysis informed the identification of actions to help
mitigate risks in these categories of commodities, including
forming long-term relationships with smaller suppliers and
continuing to monitor supply availability, global commodity
markets and emerging consumer trends.
Impacts and actions were considered for the short (0-2 years),
medium (2-5 years) and long-term (5-10 years).
| Next steps – climate action plan Under each of the assessed scenarios (depicted above), climate change would impact areas of our business and our corporate strategy to varying levels. In response, we have identified three strategic objectives on which to focus our efforts to manage the material climate risks and opportunities identified across all four scenarios: • reinforce a mindset and culture that actively considers the impact of climate change in key business decisions; • over time establish a more resilient and traceable supply chain (in material areas) that can anticipate and respond to climate related supply chain disruptions; and • appropriately build awareness and promote sustainable environmental choices to increase customer trust and loyalty. |
Climate-related risks
We recognise within the next five to 10 years Coles is likely to be
exposed to increasing climate-related risks and we must respond
by developing, refining and implementing adaptation and
mitigation actions.
Our assessment of climate-related risks includes transition risks and
physical risks. Transition risks are risks associated with the
transition to a net zero carbon economy and include heightened
stakeholder expectations, policy, regulatory and legal changes,
technological developments and increased insurance requirements.
Physical risks include acute event driven weather impacts, for
example increasing severity of extreme weather events and chronic
long-term shifs in climate patterns. A description of Coles’
transition and physical risks is presented below, together with our
management response. Many of these risks are also considered to
be material business risks to Coles Group.
Analysis of the risk exposures considered financial, reputational,
health and safety, legal and regulatory, and operational
consequences in the short-term (0-2 years) to long-term (5-10 years).
As set out below, consideration has been given to the potential for
these transition risks and physical risks to create financial impacts
to the Group.
During FY22 the Group faced significant climate-related
operational challenges, including floods in South Australia which
significantly disrupted road and rail transport to Western Australia
and the Northern Territory; and multiple major flood events in
New South Wales and Queensland which also affected transport
and resulted in some store closures. These events were managed
through the Group Response Policy and Program, and contingency
plans were executed to minimise the supply chain and retail
operational impacts of these events. While these climate-related
events are resulting in some operational disruptions in the short
term, we currently do not anticipate any material short to medium
term financial impacts.
Climate change scenarios
| +1.8ºC world (SSP1–2.6) High government policy and high technological innovation Key assumptions: • International institutions, national governments and private sector collaborate to deliver sustainable change and democratise technologies • Consumer preferences shif – increasing adoption of sustainable products, support for new technologies and rejection of businesses seen as laggards |
+2.7ºC world (SSP2–4.5) High government policy and low technological innovation Key assumptions: • Climate outlook is mixed • Governments are largely committed to sustainability, but required technology remains either undeveloped or prohibitively expensive |
+3.7ºC world (SSP3–7.0) Low government policy and high technological innovation Key assumptions: • Government direction and intervention minimal, with action falling to private sector • Technology advances in silos and only marginal improvement in rate of environmental degradation |
+4.4ºC world (SSP5–8.5) Low government policy and low technological innovation Key assumptions: • Nations are de sensitised to global warming and post pandemic economic recovery is key focus • Public and private funding for sustainable innovation dries up and technological innovations remain unaffordable |
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Consideration has also been given to the potential financial
impacts of climate-related risks on the carrying value of goodwill
through a qualitative review of the Group’s climate change risk
assessment. This review did not identify any material financial
reporting impacts.
Transition risks
Changing stakeholder expectations of acceptable
climate performance
Coles seeks to minimise the impact of its operations on the
environment. We also recognise the expectations and preferences
of our team members, customers, community, investors, and
NGOs are shifing in relation to climate change and the
environment. This includes enhanced expectations around
minimising the impact of climate-related disruptions to our
customers, improving energy efficiency, and reducing greenhouse
gas emissions.
Potential financial impacts of not achieving acceptable climate
performance include: decreased revenue due to reduced demand for
goods and services, increased costs due to loss of team members or
third parties with whom we do business, and loss in market share if
we fail to respond to stakeholder expectations appropriately.
Our response: one of the key focus areas of our Sustainability
Strategy is Together to Zero to drive generational sustainability.
This incorporates our ambition to deliver on Scope 1 and 2
emission reduction targets. During FY22 Coles signed the last of
the power purchase agreements needed to meet our target of
having 100% renewable electricity by the end of FY25.
We have teams and processes in place to understand, monitor and
respond to the concerns and expectations of key stakeholders and
the community more broadly. We also have detailed governance
arrangements to manage and monitor the development and the
progress against sustainability goals and initiatives, including
those related to climate change.
Changing policy, regulatory and legal requirements to decarbonise
and manage climate risk
New and evolving climate-related regulations need ongoing
assessment to determine the requirements for compliance,
including whether additional implementation or operational costs
are incurred, the risk of breaches or litigation, and process steps
that need to be implemented to manage compliance.
Changing regulations in existing and future markets may also
negatively impact our business, including but not limited to, the
introduction and/or expansion of trading taxes and barriers on
high emissions such as carbon pricing.
Potential financial impacts include: increased cost to comply with
changing requirements, and costs associated with offsetting
carbon-intensive operations or products.
Our response: regulatory non-compliance is one of our material
business risks and is managed with regards to the risk appetite
statements and key risk indicators agreed by the Board. The Coles
Compliance Framework, based on AS ISO 37301:2021 Compliance
management systems – Guidelines, sets out the standards,
requirements and accountability for managing regulatory
compliance obligations across the Coles Group. We also monitor
new and impending legislative and policy changes.
Pace of low emissions technology development and adoption
Decarbonising, or becoming more resilient to climate impacts, can
be aided by technology. Risks occur when technology changes are
slower than industry demand for those improvements; when
technologies become rapidly outdated resulting in financial loss;
or when there is a lack of people trained in the installation,
operation, and maintenance of the technology, thereby restricting
its adoption.
Potential financial impacts include: write-offs or early retirement
of existing assets, and increased costs associated with
investments in technology research and development, and
implementing and adapting to new technology.
Our response: we regularly assess new technologies with the
potential to advance how we mitigate or adapt to climate change.
We do this through literature reviews, attending conferences, and
assessing inbound requests from potential suppliers to review
their products. Technologies are reviewed for their suitability for
use within our operations and supply chain, prior to
implementation.
Coles is currently trialing a soil organic carbon monitoring
technology with two meat producers. Through this trial the
producers receive actionable insights into soil organic carbon
levels, which has the potential to build climate resilience and
support decarbonisation across our supply chain.
Decreased access to capital and insurance
Banks and insurers may become increasingly reluctant to support
businesses and operations with significant exposure to climate risk.
Potential financial impacts include: increasing cost of finance and
higher insurance premiums, or the unavailability of insurance for
certain activities in specific high-risk areas.
Our response: Coles’ Sustainability Strategy (and associated
metrics and targets) has facilitated access to the sustainable
finance markets. Coles has established a total of $1.425 billion
bilateral bank facilities in sustainability linked loan formats (SLLs).
The SLLs draw a direct line between our sustainability
performance and our cost of capital. Coles is incentivised through
margin adjustments to achieve sustainability targets linked to
Scope 1 and 2 emission reductions, waste and women in
leadership.
Coles transfers risk through the insurance market where it is
competitive to do so and based on exposure to the balance sheet.
Coles Captive Insurance is used as a mechanism to fund additional
exposures that cannot be risk transferred to a certain extent.
Physical risks
People safety and wellbeing (Coles team members and broader
supply chain)
Increases in the frequency and intensity of extreme weather
events, and changes in weather patterns, can lead to increasing
health and safety risks to Coles team members, customers, and
third-party suppliers and providers. This includes exposure to the
risk of physical harm in the event of acute weather events; and
adverse health and wellbeing impacts due to chronic changes to
climate patterns.
Potential financial impacts include: increased operational costs
associated with implementing plans to reduce and mitigate the
associated health and wellbeing impacts to our team members,
customers, and third-party suppliers and providers; and disruptions
to our operations and higher costs associated with employee leave,
including disaster leave, absenteeism and/or turnover.
Our response: health and safety is a material business risk and is
managed with regards to the risk appetite statements and key risk
indicators agreed by the Board. The Coles Health, Safety and Injury
Management system (SafetyCARE) and the safety plans for each of
our segments factor in the acute impacts (eg. bushfires) and
chronic impacts (eg. heat fatigue) of climate change. These
systems are supplemented by emergency management and Group
Response Policy and Program, which sets out the governance
arrangements, accountabilities and processes for crisis
management and business continuity. This program was initiated
on multiple occasions in FY22 as a result of East Coast floods to
ensure the safety of our team, customers and supplier partners.
Learnings from incidents and events, and opportunities for
improvement, are identified and incorporated into our safety,
emergency management and response plans and processes.
Food safety and quality
An increase in the frequency and severity of extreme weather
events and long-term shifs in climate patterns, can lead to food
safety and quality risks throughout the supply chain, including
changing persistence and occurrence of pests and diseases, and
lower than expected shelf-life for fresh produce.
Potential financial impacts include: reduced revenue and
increased operating costs, along with potential harm to
customers’ health and wellbeing, customer dissatisfaction and
reputational damage.
Our response: product and food safety is a material business risk
and is managed with regards to the risk appetite statements and
key risk indicators agreed by the Board. Coles has a food safety
governance program and a Product Safety Program in place which
are overseen by an experienced technical team. Further
information is available in the Risk Management section. Major
food safety and quality issues are also managed through the
Group Response Program.
Supply chain resilience
Our ability to procure, move and sell products domestically and
internationally, can be adversely impacted by the occurrence of
extreme weather events, and longer-term changes in weather
patterns.
Potential financial impacts include: disruptions to transportation
and logistics routes; and to the continuity of site, store, and
distribution centre operations, and third-party operations, due to
acute weather events. Chronic changes to weather patterns can
adversely impact supplier productivity and result in increasing
costs to operate (eg. due to changing production regions for fresh
produce) and reduced revenues.
Our response: supply chain resilience is a material business risk
and is managed with regards to the risk appetite statements and
key risk indicators agreed by the Board. Our Group Response
Program includes established processes to manage interruptions
to our supply chain and delivery of goods to stores during extreme
weather and business disruptive events. The operation of our
program during FY22 flooding incidents saw sophisticated
solutions being developed to overcome transport outages,
including container shipping being used to transport ambient
grocery products to Perth due to a protracted outage of the
continental east-west rail link. Medium and longer-term supply
security risks and mitigations are assessed on an ongoing basis as
part of category planning. We also continue to analyse Coles’
supply chain resilience in key food categories including meat, dairy
and seafood – this was informed in FY22 by the scenario analysis
discussed above.
Asset integrity and continuity of operations
Acute and chronic weather events, such as the FY22 floods, can
result in physical damage to assets and equipment as well as
closure of stores and/or inability to access assets and equipment.
There may also be more frequent and prolonged instances of
power outages; and decreases in the efficiency, and increases in
the disruption of, assets and equipment that are sensitive to
climate (e.g. refrigeration units, heating and cooling).
Potential financial impacts include: increased operating and capital
costs, loss of sales, increased insurance premiums, and write-offs
or impairment of assets.
Our response: crisis management, business continuity and
emergency response plans are in place to mitigate potential
disruptions. These plans are updated on a regular basis to take
account of changing internal and external risks and conditions.
Store design specifications consider their resilience in extreme
conditions. We have an ongoing maintenance and asset
replacement program aimed at progressively maintaining and
replacing assets when required.
Insurance arrangements are in place for property and business
interruption (subject to policy terms, conditions and exclusions).
In FY22, we completed a physical climate change risk assessment
that identified adaptation actions for Coles at both a strategic and
asset level. The risk assessment was undertaken in two stages:
1) Stage one – a high-level assessment of the physical climate
risks which identified the highest risk geographic regions for
Coles under different climate change scenarios. The
assessment took into consideration climate hazards based on
the regional geography and historic context. The results
informed the site selection for the second stage.
2) Stage two – six specific sites in high-risk exposure regions were
further assessed through a ‘deep-dive’. The sites included a
distribution centre and a store / area connected to the
distribution centre, in three priority regions. The site level
assessments were used to identify priority risks, and sitespecific adaption plans to address them. The priority risks
included extreme heat, flooding, cyclones and storms,
bushfires and humidity.
In FY23, we will continue to review the viability of adaptation
actions identified in the FY22 assessment and will further develop
our analysis of the physical climate risk exposure for Coles’
portfolio of stores and distribution centres. This further review will
help inform the work necessary to reduce exposure to climate risk
across the portfolio.
Climate-related opportunities
We have identified a number of opportunities for the Group
associated with the transition to a net zero economy, including
improved resource efficiency across our operations, supporting
our suppliers to strengthen their climate resilience, and partnering
with community organisations to reduce emissions and deliver
positive environmental outcomes.
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Coles Group Limited 2022 Annual Report
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Coles Group Limited 2022 Annual Report
56
Resource efficiency and greenhouse gas reduction
We are continuing to increase our resource efficiency and reduce
greenhouse gas emissions in areas over which we have control and
influence. See discussion below in Metrics and Targets section.
Potential financial benefits include: reduced operating costs (e.g.
through efficiency gains and cost reductions), increased
production capacity, and benefits to the health and wellbeing of
our team members, community and supply chain partners.
Increased operational resilience, supply chain resilience and
business continuity planning
We are seeking to build the resilience of our business, our
community and our value chain against climate-related impacts,
both physical and transitional.
In FY23, we will continue to review the physical climate risks
exposure for our stores and distribution centres. This will build on
the physical site assessment undertaken in FY22 and will help
inform the work necessary to reduce exposure to climate risk
across the portfolio.
We will also continue to support suppliers through grants for
climate change adaptation and mitigation initiatives through the
Coles Nurture Fund (further information about this grants program
will be available in our 2022 Sustainability Report).
Potential financial benefits include: enhanced resilience of the
supply chain and ability to operate in various conditions, and
increased sales and revenue.
Risk management
We apply an integrated Group-wide approach to the management
of risk through the application of the Coles Risk Management
Framework.
Climate change has been identified and disclosed as a material risk
to the Coles Group under our Risk Management Framework since
FY19. Refer to the Risk Management section for further information
on Coles’ material risks.
Climate change risk exposure, together with associated
management plans, risk appetites and metrics, is reported to
Group Executive, the Audit and Risk Committee, and the Board
regularly during the year, along with the broader suite of material
risks to the Coles Group.
Climate change risk is supported by an underlying climate change
risk and opportunity profile. This profile was developed in FY20
and identifies transition and physical climate change risks and
opportunities impacting the Coles Group, together with associated
actions and management plans. These risks and opportunities are
presented in the Strategy section above.
In FY23, we will further integrate climate-related risks and
opportunities as part of our risk management process to identify
and assess the risks to business units and functional business
plans and objectives.
Further information about Coles’ Risk Management Framework
will be available in our 2022 Corporate Governance Statement.
Metrics and targets
Decarbonisation
In FY21, we announced targets to reduce greenhouse gas
emissions including the following commitments:
• to deliver net zero greenhouse gas emissions by 20502;
• for the entire Coles Group to be powered by 100% renewable
electricity by the end of FY25; and
• to reduce combined Scope 1 and 2 greenhouse gas emissions
by more than 75% by the end of FY30 (from a FY20 baseline).
Our main sources of Scope 1 (direct) emissions include emissions
from refrigerant gases, natural gas and transport fuel, with a
minimal contribution from stationary LPG and diesel for onsite
back-up generators.
Scope 2 (indirect) emissions are those associated with our
electricity use and make up the bulk of our combined Scope 1 and
2 emissions.
Scope 3 emissions are indirect emissions (not included in Scope 2)
that occur in our value chain and make up the bulk of Coles’ overall
emissions profile.
Emissions data will be available in our 2022 Sustainability Report.
Scope 1 and 2 emissions
We are continuing to increase our resource efficiency and reduce
greenhouse gas emissions in areas over which we have control
and influence.
With respect to refrigeration management, we are increasing the
use of natural refrigerant gases which have close to no global
warming potential (GWP) compared with older synthetic refrigerant
gases with high GWP. To reduce gas loss we have continued to invest
in leak detection technology and our refrigeration pipe replacement
program. We also have a number of energy efficiency initiatives in
place across our stores and distribution centres, including doors on
fridges and optimised lighting.
During the year we signed the last of the power purchase
agreements needed to meet our renewable electricity target. The
new renewable electricity agreements for large-scale generation
certificate (LGC) agreements are with Lal Wind Farms, Neoen,
Origin Energy, ACCIONA Energía, and ENGIE and will be sourced
from renewable electricity generated at wind and solar farms
across Victoria, New South Wales, South Australia and
Queensland. The portfolio of generation assets includes several
wind and solar farms which are under construction as well as
existing sites such as Willogoleche Wind Farm in South Australia
and Mt Gellibrand Wind Farm in Victoria.
Coles became the first Australian retailer to announce a renewable
power purchase agreement in 2019 with global renewable power
generation company MYTILINEOS, previously known as METKA EGN. In
June 2021, Corowa Solar Farm in New South Wales became the first of
three solar plants included in the agreement to be fully operational,
with Junee and Wagga North following in December 2021.
2 At this point in time our commitment refers only to Coles’ Scope 1 and Scope 2 emissions.
Scope 3 emissions
As an organisation with an extensive supply chain there are a
range of challenges related to measuring and reducing Scope 3
emissions – namely, our reliance on supplier partners for relevant
information, gaps in data, issues with data quality and our ability
to influence suppliers’ operational and commercial practices.
These are not challenges we can solve on our own and we
recognise we will need to work together with our partners to
reduce Scope 3 emissions.
During FY22 we calculated a FY20 and FY21 inventory for Scope 3
emissions covering the following Greenhouse Gas Protocol (GHG
Protocol) categories3:
| 1. Purchased goods & services |
| 2. Capital goods |
| 3. Fuel & energy-related activities |
| 4. Upstream transportation & distribution |
| 5. Waste generated in operations |
| 6. Business travel |
| 7. Employee commuting |
| 12. End-of-life treatment of sold products |
| 15. Investments & Joint Ventures |
We subsequently proposed a Scope 3 target, which was approved
by our Board in May 2022. We have submitted our target to the
Science Based Targets Initiative (SBTi)4 for validation and at the
time of publishing are awaiting the outcome. We will disclose the
proposed Scope 3 target afer it is validated.
When calculating our Scope 3 emissions, we gained deeper insights
into our high emitting supply chain categories. During FY22 we
continued to partner with Integrity Ag and Environment to complete
a lifecycle assessment on fresh beef to improve our understanding
of its emissions profile. We are also currently participating in two
feed additive trials to reduce methane emissions associated with
beef farming. In addition, we partnered with farmers in Victoria and
New South Wales to produce our certified carbon neutral beef
range5. The Coles Finest Carbon Neutral Beef was launched in
Victoria in April 2022 with the aim of launching nationally over time.
We understand food waste and packaging also contribute to
emissions and will continue to focus on reducing food waste and
packaging in our supply chain. We have set a target to divert 85% of
solid waste from landfill by FY25 and are working towards a suite of
packaging-related targets. In addition to waste and packaging, in
coming years we will consider other ‘cross category levers’ (i.e.
initiatives to target activities that occur across most supply chain
categories) including transport, soil health and biodiversity and
nature related impacts.
Disclosure on performance against our Together to Zero emissions
and waste targets will be available in our 2022 Sustainability
Report.
| Influencing climate action We are collaborating with industry and other stakeholders, as well as investing in knowledge and research, to identify decarbonisation pathways in support of the Paris Agreement’s goals. Our Chief Executive Officer is a founding member of the Australian Climate Leaders Coalition6 and Coles is a corporate member of the Carbon Market Institute7, with representatives participating in working groups and other forums. During FY22 we have: • participated in a ‘deep dive’ working group, as part of the Australian Climate Leaders Coalition, focusing on mapping and reducing Scope 3 emissions with value chain partners; • participated in the Australian Beef Sustainability Framework, an initiative of the Red Meat Advisory Council managed by Meat and Livestock Australia. We consider the framework the most appropriate way to address climate and environmental issues facing the beef industry (such as emissions reduction and deforestation) from a national and industry-wide perspective; • partnered with the Great Barrier Reef Foundation. Through the 10-year, $10 million partnership, Coles will dedicate funds towards a number of innovative projects developing ‘blue carbon’ – the process of capturing and storing carbon in oceanic or coastal ecosystems such as mangroves, tidal marshes and seagrasses; and • continued to partner with food rescue organisations SecondBite and Foodbank to divert edible, unsold food from landfill. |
3 Consistent with guidance in the GHG Protocol, Category 8 – Upstream leased assets, Category 9 – Downstream transportation & distribution and Category 11 –
Use of sold products are excluded from our Scope 3 emissions inventory. Category 10 – Processing of sold products, 13 – Downstream leased assets and 14
– Franchises are not relevant to Coles Group.
4 The SBTi is a partnership between CDP, the United Nations Global Compact, World Resources Institute and the World Wide Fund for Nature. It provides an
independent assessment and validation of net-zero science-based targets in line with a 1.5°C future.
5 Product is certified carbon neutral from paddock to shelf under Climate Active’s Carbon Neutral Standard and ranged in selected Victorian stores.
6 An independent industry association helping business manage risks and capitalise on opportunities in the transition to a net-zero emissions economy –
see https://carbonmarketinstitute.org/.
7 A group of cross-sectoral corporate CEOs supporting the Paris Agreement commitments and setting public decarbonisation targets –
see https://www.climateleaders.org.au/.
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Coles Group Limited 2022 Annual Report
58
Maria from Coles’ livestock team and Dane from Endhill Pty Ltd with state-of-the-art machinery which can harvest lucerne in the paddock and convert it to
pellets for cattle. The pelletising machine was purchased with a $400,000 grant from the Coles Nurture Fund.
Coles Group Limited 2022 Annual Report
59
Board of Directors:
Biographical Details
James Graham AM
BE(Chem)(Hons), MBA, FIEAust EngExec, FTSE, FAICD, SF FIN
Chairman and Non-executive Director, Chairman of the
Nomination Committee and Member of the People and Culture
Committee
Age: 74
James Graham has extensive business, investment, corporate and
governance experience, including as a Non-executive Director of
Wesfarmers Limited for 20 years, prior to his retirement in July
2018. James is Chairman of Gresham Partners Limited, having
founded the Gresham Partners Group in 1985.
From 2001 to 2009, James was a Director of Rabobank Australia
Limited, initially as Deputy Chairman and then Chairman, and was
responsible for the Bank’s operations in Australia and New Zealand.
He was also Chairman of the Darling Harbour Authority between
1989 and 1995, and was previously Managing Director of Rothschild
Australia Limited. In 2008, James was made a member of the Order
of Australia.
Steven Cain
MEng (1st)
Managing Director and CEO
Age: 57
Steven Cain has over 20 years of experience in Australian and
international retail. Steven was previously Chief Executive Officer of
Supermarkets and Convenience at Metcash Limited. He was Chief
Executive of Carlton Communications plc, a FTSE 100 media group
company, and Operating Director and Portfolio Company Chairman
at Pacific Equity Partners, a private equity firm.
Steven was also the Group Marketing Director, Store Development
Director and Grocery Trading Director of Asda Stores Ltd (UK)
during its turnaround and has held roles at UK retail group
Kingfisher plc, and Bain & Company.
Steven was previously the Managing Director of Food, Liquor and
Fuel at Coles Myer and was an advisor to Wesfarmers Limited on its
takeover of the Coles Group in 2007.
David Cheesewright
BSc Mathematics and Sports Science (1st)
Non-executive Director, Member of the Nomination Committee
and the People and Culture Committee
Age: 60
David Cheesewright retired in early 2018 as President and Chief
Executive Officer of Walmart International, which comprises
Walmart’s operations outside the United States. It includes more
than 6,200 stores and over a million associates in 27 countries.
David was also responsible for Walmart’s global sourcing
operations and offices around the world. He was previously
President and CEO of Walmart EMEA (Europe, Middle East and
Africa), CEO Walmart Canada, and COO Asda.
David’s other former roles include a range of key positions with
Mars Confectionery in the UK across manufacturing, marketing,
sales and logistics. David was a board member of Walmex (Walmart
Mexico); the Chinese online grocery business Yihaodian; South
African retailer and distributor, Massmart; The Retail Council of
Canada and ECR Europe, as well as Chair of Walmart Canada Bank
and Gazeley Holdings (UK).
David is a Non-executive Director of Rapha Racing Ltd and DFI Retail
Group Holdings Limited.
Directorships of listed entities, current and recent (last three years):
Non-executive Director of DFI Retail Group Holdings Limited (since
November 2021).
Jacqueline Chow
MBA, BSc (Hons), GAICD
Non-executive Director, Member of the Nomination Committee
and the Audit and Risk Committee
Age: 50
Jacqueline Chow is a Non-executive Director of Boral Limited, nib
Holdings Limited and Charter Hall Group. She is also a Director of
the Australia-Israel Chamber of Commerce of New South Wales.
From 2016 to 2019, Jacqueline was a Director of Fisher & Paykel
Appliances. Jacqueline previously held senior management
positions, including Chief Operating Officer: Global Consumer and
Food Service, with Fonterra Co-operative Group, one of the
world’s largest dairy product producers and exporters. Prior to
that, she was in senior management with Campbell Arnott’s and
Kellogg Company. She was also Programme Steering Group
Director, Ministry for Primary Industries, New Zealand and Deputy
Chair of the Global Dairy Platform Inc. She was previously a Senior
Advisor at McKinsey Consulting RTS.
Directorships of listed entities, current and recent (last three years):
Non-executive Director of Boral Limited (since March 2022), nib
Holdings Limited (since April 2018), Charter Hall Group (since
February 2021).
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Coles Group Limited 2022 Annual Report
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Coles Group Limited 2022 Annual Report
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COL2335_AR_
| d20a | September 21, 2022 8:10 AM | Age: 57 |
| Richard Freudenstein is the Chairman and a Non-executive | ||
| Director of Appen Limited as well as a Non-executive Director of Wendy Stops is a Non-executive Director of Blackmores Limited, |
||
| REA Group Limited (where he was Chairman from 2007 to 2012). He is a board member of Cricket Australia and Deputy Chancellor |
Director of Fitted for Work, a Council member at the University of Melbourne, Chair of the Advisory Board for the Melbourne Business School’s Centre for Business Analytics, a member of the AICD’s Governance of Innovation and Technology Panel and a |
|
| of the University of Sydney. | ||
| Age: 61 |
The Directors present their report on the consolidated entity consisting of Coles Group Limited (‘the Company’) and its controlled
entities at the end of, or during, the financial year ended 26 June 2022 (collectively, ‘Coles’ or ‘the Group’).
The information referred to below forms part of and is to be read in conjunction with this Directors’ Report:
• the Operating and Financial Review
• the Remuneration Report
• Board of Directors: Biographical Details
• Note 7.3 Auditor’s remuneration to the financial statements accompanying this report
• Note 7.5 Events afer the reporting period to the financial statements accompanying this report
• the Auditor’s Independence Declaration required under section 307C of the Corporations Act 2001 (Cth).
Directors
The Directors in office as at the date of this report are:
| NAME | POSITION HELD | PERIOD AS A DIRECTOR |
| James Graham AM | Chairman and Independent, Non-executive Director | Appointed 19 November 2018 |
| Steven Cain | Managing Director and Chief Executive Officer | Appointed Chief Executive Officer 17 September 2018 Appointed Managing Director 2 November 2018 |
| David Cheesewright | Independent, Non-executive Director | Appointed 19 November 2018 |
| Jacqueline Chow | Independent, Non-executive Director | Appointed 19 November 2018 |
| Abi Cleland | Independent, Non-executive Director | Appointed 19 November 2018 |
| Richard Freudenstein | Independent, Non-executive Director | Appointed 19 November 2018 |
| Paul O’Malley | Independent, Non-executive Director | Appointed effective 1 October 2020 |
| Wendy Stops | Independent, Non-executive Director | Appointed 19 November 2018 |
The biographical details of the current Directors set out information about the Directors’ qualifications, experience, special
responsibilities and other directorships.
Company Secretary
Daniella Pereira LLB (Hons), BA
Daniella Pereira was appointed the Company Secretary of Coles Group Limited on 19 November 2018. Daniella has an extensive career
in legal, governance and company secretariat, including a 14-year career with ASX-listed industrial chemicals company Incitec Pivot
Limited. Daniella began her career as a lawyer with Ashurst (formerly Blake Dawson).
Directors’ Report
Abi Cleland
| MBA, BCom/BA Non-executive Director, Member of the Nomination Committee and the People and Culture Committee Age: 48 Abi Cleland is currently a Non-executive Director of Computershare |
BCom, M.AppFinance, ACA Non-executive Director, Chairman of the Audit and Risk Committee and Member of the Nomination Committee Age: 58 Paul O’Malley is the Chairman and a Non-executive Director of |
| Limited and Orora Limited. She was previously a Non-executive Commonwealth Bank of Australia Limited. He was Managing |
|
| Director of Sydney Airport Corporation Limited, Chair of Planwise | Director and Chief Executive Officer of BlueScope Steel Limited |
| AU, a Director of Swimming Australia and on the Lazard PE Fund advisory committee. From 2012 to 2017, Abi established and ran from 2007 to 2017, afer joining the company as Chief Financial Officer. Previously, Paul was the Chief Executive Officer of TXU |
|
| an advisory and management business, Absolute Partners, | Energy, a subsidiary of TXU Corp based in Dallas, Texas. He held |
| focusing on strategy, mergers and acquisitions and disruption. other senior financial management roles within TXU and |
|
| Before that, she held senior management roles at KordaMentha’s | previously worked in the investment banking and consulting |
| 333, where she was Managing Director, and at ANZ Banking Group sectors. A former Director of the Worldsteel Association, Paul was |
|
| Limited, Incitec Pivot Limited and Amcor Limited. | Chair of their Nominating Committee and Trustee of the Melbourne Cricket Ground Trust. He has also served as Chairman for |
Directorships of listed entities, current and recent (last three years):
Non-executive Director of Computershare Limited (since February
2018), Orora Limited (since February 2014), Sydney Airport
| Corporation Limited (April 2018 to March 2022). | Chairman of Commonwealth Bank of Australia Limited (since August 2022) and Non-executive Director (since January 2019). |
Richard Freudenstein
| LLB (Hons), BEc | Wendy Stops BAppSc (Information Technology), GAICD |
| Non-executive Director, Chairman of the People and Culture Committee and Member of the Nomination Committee |
Non-executive Director, Member of the Nomination Committee |
Richard was previously Chief Executive Officer of Foxtel (2011 to
2016), Chief Executive Officer of The Australian and News Digital
Media at News Ltd (2006 to 2010), and Chief Operating Officer at
| British Sky Broadcasting plc (2000 to 2006). His previous board positions include Ten Network Holdings (2015 to 2016), Foxtel (2009 to 2011) and Astro Malaysia Holdings Berhad (2016 to 2019). Richard was also a member of the Advisory Board of artificial |
Previously, Wendy was a senior management executive in the information technology and consulting sectors. This includes her last 16 years with Accenture in various senior management positions in Australia, Asia Pacific and globally. Her board |
| intelligence sofware company, Afiniti Ltd (2017 to 2022). | experience includes Commonwealth Bank of Australia Limited, Altium Limited, Accenture Sofware Solutions Australia and Diversiti. Currently, Wendy is a member of Chief Executive Women, |
| Directorships of listed entities, current and recent (last three years): |
Chairman of Appen Limited (since October 2021) and Nonexecutive Director (since August 2021), Non-executive Director of
REA Group Limited (since November 2006), Astro Malaysia
Holdings Berhad (September 2016 to August 2019).
Paul O’Malley
Australian Catholic Redress Ltd.
Directorships of listed entities, current and recent (last three years):
and the Audit and Risk Committee
member of the Advisory Committee to the Digital Technology
Taskforce of the Department of Industry, Science and Resources.
serving on their Leaders Program Committee, and a graduate of
the AICD.
Directorships of listed entities, current and recent (last three years):
Non-executive Director of Blackmores Limited (since April 2021),
Commonwealth Bank of Australia Limited (March 2015 to October
2020), Altium Limited (February 2018 to November 2019).
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| COL2335_AR_ | |
| d20a | September 21, 2022 8:10 AM |
Events afer the reporting date
On 24 August 2022, the Directors determined a final dividend of 30.0 cents per fully paid ordinary share to be paid on 28 September
2022, fully franked at the corporate tax rate of 30%. The aggregate amount of the final dividend to be paid out of profits, but not
recognised as a liability at 26 June 2022, is expected to be $401 million.
Dividends
Dividends since Coles’ last Annual Report:
| TYPE | CENTS PER SHARE | TOTAL AMOUNT $m |
FRANKED PERCENTAGE |
DATE OF PAYMENT |
| PAID DURING THE YEAR | ||||
| 2021 final dividend | 28.0 | 373 | 100% | 28 September 2021 |
| 2022 interim dividend | 33.0 | 441 | 100% | 31 March 2022 |
| TO BE PAID AFTER END OF YEAR | ||||
| 2022 final dividend | 30.0 | 401* | 100% | 28 September 2022 |
| DEALT WITH IN THE FINANCIAL REPORT AS | NOTE | $m | ||
| Dividends paid | 3.3 | 814 |
* Estimated final dividend payable, subject to variations in the number of shares up to the record date.
Environmental regulations
The activities of the Company are subject to a range of environmental regulations under the law of the Commonwealth of Australia and
its states and territories. The Group is also subject to various state and local government food licensing requirements, and may be
subject to environmental and town-planning regulations. The Group has not incurred any significant liabilities under any environmental
legislation during the financial year.
Indemnification and insurance of officers
The Company’s Constitution requires the Company to indemnify any person who is, or has been, an officer of the Company, including
the Directors, the Company Secretary and other executive officers, against the liabilities incurred while acting as such officers to the
extent permitted by law.
In accordance with the Company’s Constitution, the Company has entered into a Deed of Indemnity, Insurance and Access with each of
the Company’s Directors, Company Secretary, Chief Financial Officer and certain executives. No Director or officer of the Company has
received benefits under an indemnity from the Company during or since the end of the financial year.
The Company has paid a premium in respect of a contract insuring current and former directors, company secretaries and executives
of the Company and its subsidiaries against liability that they may incur as an officer of the Company or any of its subsidiaries, including
liability for costs and expenses incurred by them in defending civil or criminal proceedings involving them as such officers, with certain
exceptions. It is a condition of the insurance contract that no details of the premiums payable or the nature of the liabilities insured are
disclosed.
Indemnification of auditors
Pursuant to the terms of engagement the Company has with its auditors, Ernst & Young (EY), the Company has agreed to indemnify EY
to the extent permitted by law and professional regulations, against any losses, liabilities, costs or expenses incurred by EY where they
arise out of or occur in relation to any negligent, wrongful or wilful act or omission by the Company. No payment has been made to EY
by the Company pursuant to this indemnity, either during or since the end of the financial year.
Directors’ meetings
The number of Directors’ meetings (including meetings of committees of Directors) and the number of meetings attended by each of
the Directors of the Company during the financial year are listed below:
| BOARD | AUDIT AND RISK COMMITTEE |
PEOPLE AND CULTURE COMMITTEE |
NOMINATION COMMITTEE |
|||||
| DIRECTOR – CURRENT1,2 | Held | Attended | Held | Attended | Held | Attended | Held | Attended |
| James Graham | 12 | 12 | 5 | 5 | 4 | 4 | ||
| Steven Cain | 12 | 12 | ||||||
| David Cheesewright | 12 | 10 | 5 | 3 | 4 | 3 | ||
| Jacqueline Chow | 12 | 12 | 5 | 5 | 4 | 4 | ||
| Abi Cleland | 12 | 12 | 5 | 5 | 4 | 4 | ||
| Richard Freudenstein | 12 | 12 | 5 | 5 | 4 | 4 | ||
| Paul O’Malley | 12 | 12 | 5 | 5 | 4 | 4 | ||
| Wendy Stops | 12 | 12 | 5 | 5 | 4 | 4 |
1 ‘Held’ indicates the number of meetings held during the period that the Director was a member of the Board or Committee.
2 ‘Attended’ indicates the number of meetings attended during the period that the Director was a member of the Board or Committee.
Directors’ shareholdings in the Company
Details of Directors’ shareholdings in the Company as at the date of this Directors’ Report are shown in the table below. All Directors
have met the minimum shareholding requirement under the Board Charter.
| DIRECTOR | NUMBER OF SHARES HELD1 |
| James Graham | 500,188 |
| Steven Cain2 | 218,115 |
| David Cheesewright | 20,000 |
| Jacqueline Chow | 20,000 |
| Abi Cleland | 19,816 |
| Richard Freudenstein | 19,000 |
| Paul O’Malley | 3,809 |
| Wendy Stops | 25,000 |
1 The number of shares held refers to shares held either directly or indirectly by Directors as at 24 August 2022. Refer to the Remuneration Report tables for total
shares held by Directors and their related parties directly, indirectly or beneficially as at 26 June 2022.
2 As at 24 August 2022, Steven Cain also holds 140,380 STI Shares and 725,010 Performance Rights.
Principal activities
The principal activities of Coles during the financial year were providing customers with everyday products, including fresh food,
groceries, general merchandise, liquor, fuel and financial services through its store network and online platforms. No significant
changes have occurred in the nature of these activities during the financial year.
State of affairs
There have been no significant changes in Coles’ state of affairs during the financial year.
Review and results of operations
A review of the operations of the Group during the financial year, the results of those operations and the Group’s financial position are
contained in the Operating and Financial Review (OFR).
Business strategies and prospects for future financial years
The OFR sets out information on the business strategies and prospects for future financial years and refers to likely developments in
Coles’ operations and the expected results of those operations in future financial years. Information in the OFR is provided to enable
shareholders to make an informed assessment about the business strategies and prospects for future financial years of the Group.
Information that could give rise to any likely material detriment to the Group, for example, information that is commercially sensitive,
confidential or could give a third party a commercial advantage, has not been included. Other than the information set out in the OFR,
information about other likely developments in the Group’s operations and the expected results of these operations in future financial
years has not been included.
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Coles Group Limited 2022 Annual Report
64
COL2335_AR_
d20a September 21, 2022 8:10 AM
Non-audit services and auditor’s independence
Details of the non-audit services undertaken by, and amounts paid to, EY are detailed in Note 7.3 Auditor’s remuneration to the financial
statements.
The Board is satisfied that the provision of non-audit services during the year by the Auditor is compatible with, and did not compromise,
the auditor independence requirements of the Corporations Act 2001 (Cth) for the following reasons:
• all non-audit services provided by EY were reviewed and approved to ensure they do not impact the integrity and objectivity of the
Auditor; and
• the non-audit services provided did not undermine the general principles relating to auditor independence as set out in APES 110
Code of Ethics for Professional Accountants as they did not involve reviewing or auditing the Auditor’s own work, acting in a
management or decision-making capacity of the Company, acting as an advocate of the Company or jointly sharing risks or rewards.
A copy of the Auditor’s Independence Declaration forms part of this report.
Proceedings on behalf of the Company
No application has been made under section 237 of the Corporations Act 2001 (Cth) in respect of the Company, and there are no
proceedings that a person has brought or intervened in on behalf of the Company under that section.
Rounding
The amounts shown in this report and in the financial statements have been rounded off, except where otherwise stated, to the nearest
one million dollars, with the Company being in a class specified in the ASIC Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191.
Signed on behalf of the Board in accordance with a resolution of the Directors of the Company.
James Graham AM Steven Cain
Chairman Managing Director and Chief Executive Officer
24 August 2022 24 August 2022
Coles Group Limited 2022 Annual Report
65
OL2335_AR_
ember 21, 2022 9:52 AM
Dear Shareholder,
On behalf of the Board, I am pleased to present the FY22 Remuneration Report for Coles Group Limited (‘the Company’) and its
controlled entities (together, ‘Coles’, ‘Coles Group’ or ‘the Group’). The Remuneration Report provides information on the remuneration
arrangements for our Key Management Personnel (‘KMP’) which include the Managing Director and Chief Executive Officer (‘Managing
Director and CEO’), Other Executive KMP and Non-executive Directors of the Company.
Coles has continued to pursue its vision to be the most trusted retailer in Australia and grow long-term
shareholder value
Coles has continued to deliver on its transformation strategy in FY22, while maintaining stable earnings before interest and tax (EBIT).
This is despite significant COVID-19 costs, transformation project costs, flood events and lower Express earnings as a result of reduced
mobility from COVID-19 lockdowns.
Notwithstanding the highly disrupted operating environment, the Coles management team led by Managing Director and CEO, Steven
Cain maintained focus on our vision to ‘become the most trusted retailer in Australia and grow long-term shareholder value’ across
FY22, and delivered a solid set of financial results and strategic achievements to progress the ‘Winning Together in our Second Century’
strategy including:
Inspire Customers
• Delivered trusted value with an extensive Exclusive to Coles range of almost 6,000 products, with more than 1,300 Coles Own Brand
products launched during the year, while successful value campaigns focused on lowering the cost of living for customers
• Supermarkets eCommerce sales growth of 41% with progress made in the unified customer experience through the launch of a new
shoppable Coles App enabling customers to shop anytime, anywhere, anyhow
• Liquor eCommerce sales growth of 49% through an expanded range, continued roll out of Click & Collect and on demand (immediacy
delivery) now available in more than 400 stores
Smarter Selling
• Benefits of over $230 million were delivered through our Smarter Selling program in FY22 and we are on track to deliver $1billion in
benefits by FY23
• Refreshed Coles career website and recruitment processes using technology to deliver a more streamlined and efficient process
• Renewed 50 supermarkets as part of Coles’ store format strategy including six new Coles Local stores. In Liquor, 191 Liquorland stores
were renewed in the new Black and White format, eight First Choice Liquor Market and nine Vintage Cellar stores were renewed
Win Together
• A significant improvement in safety performance was achieved, with a 14.7% reduction in Total Recordable Injury Frequency Rate (TRIFR)
• Team member engagement strengthened across the year with a three percentage point improvement
• A number of accolades were received for achievements in diversity and inclusion, including recognition by the Australian Network
on Disability as a top employer for people with a disability and, for the second year in a row, recognition as a Gold tiered employer at
the 2022 Australian LGBTQ Inclusion Awards
• A $10 million commitment over 10 years to our ‘Blue Carbon Partnership’ with the Great Barrier Reef Foundation
• Ranked the number two food retailer globally for sustainable business practices in the World Benchmarking Alliance’s 2021 Food
and Agriculture Benchmark1
Remuneration Report
Letter to shareholders from the
Chair of the People and Culture Committee
1 Based on 2021 Food and Agriculture Benchmark of 350 food and agriculture companies globally by the World Benchmarking Alliance. Benchmark across four
key measurement areas of social inclusion, nutrition, governance & strategy, and environment. Coles ranked #12/350 companies overall and #2/62 of food
retailers globally.
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Looking ahead
The Board regularly reviews our remuneration and incentive frameworks so that it continues to strongly align to our remuneration
strategy, principles and our long-term strategy. For the FY23 STI, the Board has chosen to expand the Safety metric to include a broader
safety index, beyond TRIFR which has a greater focus on lead indicators. Aside from this important amendment to STI, the Board has
determined the current remuneration framework for the Executive KMP continues to reflect Coles’ strategy and market positioning.
The Board is appreciative of the efforts of all Coles team members across what was another challenging year. Our teams managed the
ongoing impacts of COVID-19 along with unprecedented weather events, including the devastating floods in NSW, Queensland and WA,
which impacted our customers, suppliers and communities.
We could not be prouder of the performance and resilience of our Team Members and their capacity to face into these challenges to
ensure we deliver on our promise of trusted value to our customers.
Richard Freudenstein
Chair of the People and Culture Committee
Outcomes for FY22
Given the significant disruption caused by COVID-19 across FY21, the Board made the decision to defer the setting of FY22 financial
targets for both the short-term incentive (STI) and long-term incentive (LTI) plans until the end of the first quarter. With the information
available at that time, including actualised first quarter performance, full year forecasts and budgets, and market sentiment, the Board
approved targets for each plan which were either flat to, or exceeded, the original FY22 budget.
Notwithstanding the challenges presented to management across the year, the Group’s performance was solid against all financial metrics
included in the Executive KMP STI balanced scorecard for FY22, delivering above target performance against each of the targets set by the
Board. Specifically, Group sales revenue increased by 2% to $39.4 billion and EBIT decreased marginally by 0.2% to $1,869 million. However,
EBIT includes COVID-19 costs of approximately $240 million, compared to approximately $130 million of COVID-19 costs incurred in FY21.
Performance was also strong against our safety and team member engagement non-financial metrics with significant improvements in
both areas, and ongoing focus on A team that is better together. Following strong performance at the beginning of the year, in the second
half of FY22, our main customer metric – net promoter score (NPS) – was negatively impacted as a result of supply chain challenges, which
affected availability for customers.
Coles has made significant eCommerce investments in its digital platforms to provide a seamless unified customer experience. The Ocado
program is a key enabler of our eCommerce strategy delivering an enhanced experience for our customers to shop Anytime, Anywhere,
Anyhow.
The Ocado program will be delivered within the timeframes previously advised however will require further investment to complete. The
additional investment will address the significant increase in the size of our eCommerce business compared to the size at the time the
original program was approved, including an expanded scope, an enhanced customer experience and offer, COVID-19 impacts and
program delays, efficiency and sustainability initiatives and contingency. In consideration of the additional investment required to
complete, the Board has decided not to reward Executive KMP for in year achievements against the Ocado program metric in the FY22 STI
balanced scorecard.
Section 4.4 covers the STI outcomes in more detail and includes a summary of the Board’s approach in determining the final STI payable
to Executive KMP. The resulting impact was STI outcomes for the Executive KMP that ranged between 69.0% to 75.7% of the maximum
STI opportunity. The Board is of the opinion these outcomes reflect the solid achievements delivered by management against the
commitments made to shareholders for FY22. Under the remuneration framework, 50% of the Managing Director and CEO’s STI award
will be deferred into equity for two years, and 25% of the Other Executive KMP STI awards will be deferred into equity for one year.
With respect to the FY20 LTI that covered performance between FY20-FY22, 100% of the performance rights allocated to Executive KMP
will vest on 1 September 2022 based on performance against set targets. This award had two performance metrics. The first metric was
cumulative Return On Capital (ROC) achieving a result of 110.9% of target. The second metric was relative Total Shareholder Return
(TSR) with performance assessed at the 84.3 percentile against the comparator group.
The Board is satisfied this outcome reflects management performance based on an absolute and market relative basis. Further
information of performance against set targets and vesting outcomes is covered in Section 4.5.
Executive KMP Transition
As announced to shareholders in November 2021, Greg Davis ceased being an Executive KMP during April 2022 and will cease employment
with Coles on 14 October 2022. Leah Weckert moved from the role of Chief Financial Officer into the role of Chief Executive, Commercial
& Express on 15 April 2022. Leah brings a wealth of experience to this role having held a number of leadership roles across Coles since
she joined in 2011.
Following an internal and external search SR (Charlie) Elias joined Coles on 1 December 2021 and was appointed to the role of Chief
Financial Officer on 28 February 2022. Charlie has extensive finance and executive leadership experience. Prior to joining Coles, Charlie
was the CEO of BlueScope Building Products Asia and North America. His previous roles have included CFO of BlueScope Limited, CFO
and Executive Director of Linfox Group and CFO, Director and General Manager Strategy & Business Development for TXU Australia.
Afer a review of portfolios across Coles leadership, Matthew Swindells assumed the role of Chief Sustainability Officer in addition to his
role of Chief Operations Officer from 17 June 2022. Elevating the sustainability role to a member of the Executive KMP further supports
our commitment to ‘sustainably help all Australians to lead healthier, happier lives’.
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Section 2: Remuneration Governance
2.1 Governance framework
The diagram below provides an overview of the remuneration governance framework that has been established by the Group.
Further information regarding the membership and meetings of the People and Culture Committee is provided in the Directors’ Report.
Management makes recommendations to the People and
Culture Committee on matters including (but not limited to):
• remuneration arrangements of Executive Direct Reports,
including the establishment of any new incentive and
equity plans, or amendments to the terms of existing
arrangements;
• annual performance review of Executive Direct Reports; and
• changes to the Group’s remuneration policies.
The People and Culture Committee may consult with
shareholders, proxy advisors and other relevant stakeholders,
in determining appropriate remuneration policies for the
Group, including remuneration arrangements for the
Managing Director and CEO, and Executive Direct Reports.
The Board maintains overall accountability for oversight of the Group’s remuneration policies to ensure that they are aligned with
the Group’s vision, values, strategic objectives, and risk appetite. The Board approves all remuneration and benefit arrangements
as they relate to the Managing Director and CEO; and executive-level direct reports to the Managing Director and CEO (‘Executive
Direct Reports’), having regard to the recommendations made by the People and Culture Committee and the remuneration
arrangements for Non-executive Directors. The Board maintains absolute discretion to either positively or negatively adjust the
remuneration outcomes for the Managing Director and CEO and Executive Direct Reports. The Board will use its discretion based
on the provision of supporting data and their assessment of performance aligned to the Group’s values and LEaD behaviours, risk,
compliance, reputational, safety and sustainability considerations as well as the quality of earnings delivered.
The Board
Audit and Risk People and Culture Committee
Committee
Shareholders and other stakeholders
The role of the Committee is to assist the Board in fulfilling its
responsibilities to shareholders and regulators in relation to the
Group’s remuneration policies. The Committee does this by
reviewing and making recommendations to the Board on
matters including (but not limited to):
• setting remuneration arrangements of Non-executive Directors,
the Managing Director and CEO, and Executive Direct Reports;
• the annual performance review of the Managing Director and
CEO and Executive Direct Reports; and
• assessing remuneration outcomes for the Managing Director
and CEO and Executive Direct Reports.
The Committee delegate authority for the operation and
administration of all Group incentive and equity plans to
management.
The People and Culture
Committee may seek
advice from independent
remuneration consultants
in determining
appropriate remuneration
policies for the Group, and
specifically remuneration
arrangements for the
Managing Director and
CEO, and Executive Direct
Reports.
The Audit and Risk
Committee advise the
Board and People and
Culture Committee on any
risk, conduct and
compliance matters that
may relate to executive
remuneration outcomes
and/or financial targets
and results.
External
advisers
Management
External advisors may be engaged either directly by the People and Culture Committee or through management, to provide information
on remuneration related issues, including benchmarking information and market data.
Introduction
The Directors of Coles Group Limited (‘the Company’) present the Remuneration Report for the Company and its controlled entities
(together, ‘Coles’, ‘Coles Group’ or ‘the Group’) for the financial year ended 26 June 2022 (‘FY22’). This Remuneration Report forms part
of the Directors’ Report and has been prepared in accordance with section 300A of the Corporations Act 2001 (Cth) and is audited.
This Remuneration Report covers the period from 28 June 2021 to 26 June 2022.
Structure of this report
The remuneration report is divided into the following sections;
| SECTION |
| (1) Key Management Personnel |
| (2) Remuneration governance |
| (3) Remuneration policy and structure overview |
| (4) FY22 Executive KMP remuneration outcomes |
| (5) FY22 Non-executive Director remuneration |
| (6) Ordinary Shareholdings |
Section 1: Key Management Personnel
We have prepared this Remuneration Report in respect of the Group’s Key Management Personnel (‘KMP’), being the people who have
the authority and responsibility for planning, directing, and controlling the Group’s activities, either directly or indirectly. This includes
the Board of Directors and Executive KMP.
The ‘Executive KMP’ includes the Managing Director and CEO, and all other executives considered to be KMP. References to ‘Other
Executive KMP’ means the Executive KMP excluding the Managing Director and CEO.
Table 1 shows the people who were considered KMP of the Group during FY22.
Table 1:
Non-executive Directors
| NAME | POSITION HELD | TERM |
| James Graham AM | Chairman and Non-executive Director | Full Year |
| David Cheesewright | Non-executive Director | Full Year |
| Jacqueline Chow | Non-executive Director | Full Year |
| Abi Cleland | Non-executive Director | Full Year |
| Richard Freudenstein | Non-executive Director | Full Year |
| Paul O’Malley | Non-executive Director | Full Year |
| Wendy Stops | Non-executive Director | Full Year |
Executive KMP
| NAME | POSITION HELD | TERM |
| Current | ||
| Steven Cain | Managing Director and Chief Executive Officer | Full Year |
| SR (Charlie) Elias1 | Chief Financial Officer | From 28 February 2022 |
| Leah Weckert2 | Chief Executive, Commercial & Express from 15 April 2022 Chief Financial Officer to 27 February 2022 |
Full Year |
| Matthew Swindells3 | Chief Operations and Sustainability Officer | Full Year |
| Former | ||
| Greg Davis | Chief Executive, Commercial & Express | To 14 April 2022 |
1 Charlie Elias commenced employment on 1 December 2021.
2 Between 28 February 2022 and 14 April 2022, Leah Weckert took a period of long service leave and completed a handover from Greg Davis. Leah is considered a KMP
for the full year.
3 Matthew Swindells commenced in the role of Sustainability Officer on 17 June 2022.
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Executive KMP remuneration is delivered using both fixed and variable (at-risk) components as outlined in the following graphic.
| Our Executive KMP remuneration is delivered through a simple, three element structure using both fixed and variable (at-risk) components. |
|||
| Fixed elements | Variable elements | ||
| 1. Total Fixed Compensation (TFC) | 2. Short-term incentive (STI) | 3. Long-term incentive (LTI) | |
| How it is delivered | |||
| Cash | Cash | Equity (Shares) | Equity (Performance Rights) |
| How it works: | |||
| • consists of base salary and superannuation • target position is the 50th percentile of the ASX 10-40 comparator group (plus reference to local and international retailers, as required) |
• paid as part cash, part deferred equity: = Managing Director and CEO 50% deferred into shares and restricted for 2 years = Other Executive KMP 25% deferred into shares and restricted for 1 year • opportunity levels (all Executive KMP): = 80% of TFC at Target = 120% of TFC at Maximum • measured against an individual balanced scorecard consisting of: = 60% financial measures = 40% strategic and non-financial measures • includes a mixture of group and functional strategic measures |
• delivered in Performance Rights, subject to a 3-year Performance Period • opportunity levels: = Managing Director and CEO 175% of TFC = Other Executive KMP 150% of TFC • measured against: = 50% Relative TSR (RTSR) (ASX 100 comparator group) = 50% cumulative Return on Capital (ROC) • dividend equivalent payment made in shares upon vesting |
|
| What it does | |||
| Allows us to attract and retain key talent through competitive and fair fixed remuneration |
Incentivises strong individual and Company performance, based on strategically aligned deliverables, through variable, at-risk payments |
Aligns reward with creation of sustainable, long-term shareholder value |
|
| What are the time horizons of the awards? |
STI TFC
| 3 MD & C Other Executive KMP 25% deferred in |
2-year vest to Shares held in restriction for 1 year |
ing period |
| -year vesting period, vesting occurs post FY24 result Performance Period (3 years) EO – 50% deferred into shares held in restriction for 2 |
s years |
FY22 FY23 FY24
LTI
Salary paid during the year
Performance Period (1 year)
Performance Period (1 year)
Performance Rights vest subject to performance hurdles being met
MD & CEO – 50% paid in cash
Other Executive KMP 75% paid in cash
1-year vesting period
During FY22 Mercer provided independent benchmarking in relation to executive remuneration to management and the People and
Culture Committee. No remuneration recommendations were made by external consultants. The People and Culture Committee is
satisfied that the information provided was free from undue influence by any executive.
2.2 Corporate governance policies related to remuneration
Our robust remuneration framework is supported by several corporate governance polices related to remuneration including those following.
2.2.1 Securities Dealing Policy
Coles has adopted a Securities Dealing Policy that applies to all Group team members including Non-executive Directors and Executive
KMP and their connected persons, as defined within the policy. This policy sets out the insider trading laws all Group team members must
comply with, including specific restrictions with which KMP must comply. This includes obtaining approval prior to trading in the Group’s
securities and not trading within blackout periods, other than with approval in exceptional circumstances as detailed within the policy. The
policy aims to protect the reputation of the Group and maintain confidence in trading in the Group’s securities. It prohibits specific types
of transactions being made which are not in accordance with market expectations or may otherwise give rise to reputational risk.
2.2.2 Minimum Shareholding Policy
The Group’s Minimum Shareholding Policy is a key means by which the interests of the KMP are aligned with those of the shareholders.
The policy requires both Non-executive Directors and Executive KMP to build and maintain a significant shareholding in the Group.
Non-executive Directors
Non-executive Directors are required to hold at least 1,000 ordinary shares in the Company within six months of their appointment. The shares
may be held by a Non-executive Director either in their own name, or indirectly in the name of an entity controlled by the Non-executive
Director or a closely related party. As at the date of this Remuneration Report, each Non-executive Director satisfies this requirement.
Within five years of appointment, each Non-executive Director is expected to increase their shareholding to an amount equivalent to
100% of their annual base fee at that time. The details of each Non-executive Director’s shareholding are summarised in Table 10.
Executive KMP
Executive KMP are required to achieve a minimum shareholding equivalent to 100% of total fixed compensation (‘TFC’) by the later of
five years from the date they commence, or five years from the introduction of the policy on 1 July 2019. The details of each Executive
KMP shareholding are summarised in Table 11.
In addition to Executive KMP, this policy also applies to all other Executive Direct Reports.
Section 3: Executive remuneration policy and structure overview
3.1 Executive remuneration policy for FY22
Our remuneration framework is aligned with our ‘Winning Together in our Second Century’ strategy and is guided by our remuneration
principles. The People and Culture Committee determined the framework is appropriately aligned with our strategy and the interests
of our shareholders.
Market competitive
Retail is a globally
competitive industry.
We need to be able to
attract, motivate and retain
high-calibre executives in
both the local and global
talent market.
Performance-based
A strong link to
performance-based pay to
support the achievement of
strategy aligned with short,
medium- and long-term
financial targets.
1
Creates long-term value
for shareholders
Ensuring there is a
common interest
between executives
and shareholders by
aligning reward with the
achievement of sustainable
shareholder returns.
1
Fit for purpose
Designed to be relevant to
how the Group operates.
It needs to be simple to
articulate, drive the right
behaviours and ensure we
deliver on our strategy.
1 1
Specific performance measures and outcomes for FY22 are included in section 4. Details of prior years’ remuneration, including
performance measures and outcomes, are set out in the Remuneration Reports of prior Annual Reports, which are available on the
Coles website.
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Section 4: FY22 Executive KMP remuneration outcomes
4.1 Company performance
The remuneration framework has been designed to reward Executive KMP for their contribution to the collective performance of the
Company and to support the alignment between the remuneration of Executive KMP and shareholder returns.
As the Group listed on the ASX on 21 November 2018, it is not possible to address the statutory requirement that the Group provides a
five- year discussion of the link between performance and remuneration. This data will continue to be expanded each year to provide
the required comparative metrics for the financial years in which the Group was listed.
The following graphs and table represent the relationship between remuneration of Executive KMP and the Group’s financial
performance over the last four financial years (including FY22).
Sales Revenue1
($m)
Coles Online Sales1, 2
($m)
Short-term measures Long-term measures
EBIT
($m)
TSR3
(%)
ROC4
(%)
ROC (ROC pre AASB16)
1,101
2,816
1,998
1,301
1,467
1,869
1,873
1,762
6.9
9.6
3.9
31.7
32.9
15.2
35.2
16.0
39.1
16.4
38.1
35,001
39,369
38,585
37,408
FY19 FY20 FY21 FY22 FY19 FY20 FY21 FY22 FY19 FY20 FY21 FY22 FY19 FY20 FY21 FY22 FY19 FY20 FY21 FY22
| FY19 | FY20 | FY21 | FY22 | |
| STI outcomes (AVG Executive KMP % of maximum) | 39.0% | 97.4% | 88.2% | 73.1% |
| LTI outcomes (% of maximum) | n/a | n/a | 97.6% | 100% |
| Dividends determined in respect of the financial year (cents)5 | 35.5 | 57.5 | 61.0 | 63.0 |
| Closing share price (at end of financial year)6 | $13.35 | $16.79 | $16.83 | $17.81 |
1 FY21 sales revenue and online sales have been restated to reflect a reclassification of fulfilment income to sales revenue (previously reported within Other Income).
2 Coles Online Sales comprises retail sales on a gross basis before adjusting for concession sales and the cost of Flybuys scheme points.
3 TSR is calculated as the change in share price during the financial measurement period plus dividends reinvested on the respective ex-dividend dates.
4 ROC is Group EBIT divided by capital employed. Capital employed is calculated on a rolling average basis (seven months in FY19).
5 The dividends determined in respect of the financial year reflect the dividends determined for the financial year irrespective of the dividend payment date.
6 The opening share price on listing on the ASX on 21 November 2018 was $12.49.
4.2 Board oversight of remuneration outcomes
The Board maintains absolute discretion to ensure remuneration outcomes are appropriate in the context of the Company’s
performance, our customer experience and shareholder expectations. The Board has discretion in evaluating the achievement against
performance measures, including to adjust for unusual factors. The steps undertaken by the Board to inform their decisions with
respect to remuneration outcomes for FY22 is further outlined in sections 4.3 to 4.5.
4.3 Total fixed compensation (TFC)
TFC is designed to be competitive to attract, motivate and retain the right talent. The TFC for Executive KMP is compared to the ASX
10-40 (based on market capitalisation) benchmark group, as well as local and international retailers. We target TFC at the 50th percentile
of this peer group for comparable roles. This approach to benchmarking has remained unchanged since FY19.
The Board reviewed Executive KMP TFC and total remuneration packages against the comparator group during FY22. This was informed
by a detailed benchmarking exercise conducted by Mercer. The Board determined that it was appropriate to award TFC increases
ranging between 2% and 5% to each of the Executive KMP effective 1 October 2021. These increases were reflective of the sustained
high performance of the Executive KMP and designed to support the market competitiveness of their total remuneration.
A review of fixed remuneration will be conducted in FY23 in line with our remuneration principles. Any approved changes will be
disclosed in our FY23 Remuneration Report.
3.2 FY22 target remuneration mix for Executive KMP
The FY22 total target remuneration mix for the Executive KMP in Chart 1.
Chart 1 – Total target remuneration mix
Managing Director and CEO Other Executive KMP
11%
11%
28%
50%
TFC Cash
STI Cash
STI Equity
LTI
TFC Cash
STI Cash
STI Equity
LTI
6%
18%
30%
46%
3.3 Executive KMP employment agreements
Executive KMP employment terms are formalised in employment contracts that have no fixed term. Specific information relating to the
terms of the Executive KMP’s employment contracts is in Table 2.
Table 2: Executive KMP employment contracts
| NAME | NOTICE PERIOD1 | RESTRAINT OF TRADE |
| Current | ||
| Steven Cain | 12 months | 12 months |
| SR (Charlie) Elias | 12 months | 12 months |
| Leah Weckert | 12 months | 12 months |
| Matthew Swindells | 6 months | 6 months |
| Former | ||
| Greg Davis2 | 6 months | 6 months |
1 Executive KMP can be terminated without notice if they are found to have engaged in serious or willful misconduct, are seriously negligent in the performance of
their duties, commit a serious or persistent breach of their employment contract, or commit an act, whether at work or otherwise, that would bring the Group into
disrepute. The Group may also make a payment in lieu of notice.
2 Greg Davis’ entitlements on ceasing employment are aligned to his employment contract, and the terms of the STI and LTI plans that Greg participated in as
Executive KMP.
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Table 3: FY22 Performance measures for the Managing Director and CEO
| Performance Measure |
Target Weighting |
Max Weighting |
Target | FY22 Performance Outcome |
Actual STI Outcome |
Commentary | |
| Financial | Group EBIT | 35% | 70% | $1,823m | $1,869m Above Target |
52.7% | Group EBIT: delivered through sales growth and Smarter Selling cost reduction benefits, offsetting COVID-19 costs, which were elevated as the Delta variant spread in the first half of the year followed by Omicron in the early part of the second half of the year. This was delivered despite trading volatility driven by external events, including COVID-19, flooding and disruption to global supply chains. |
| Group Sales | 15% | 30% | $39,217m | $39,369m Above Target |
20.8% | Group Sales: Sales revenue growth supported by eCommerce performance in Supermarkets and Liquor, successful execution of trade plans delivering trusted value, tailored ranges, and customer continuity programs. |
|
| Coles Online Sales |
10% | 10% | $2,667m | $2,816m Above Target |
10% | Coles Online Sales: growth supported by ongoing expansion of the customer offer across home delivery, Click & Collect and increased investment into immediacy offers through Click & Collect Rapid and same day home delivery. |
|
| Strategic | Transformation – Ocado program |
10% | 10% | Program meeting approved on time, on budget and on strategy FY22 deliverables |
Not achieved Below threshold |
0% | In consideration of the additional investment required to complete, the Board has decided not to reward Executive KMP for in year achievements |
| Safety – TRIFR |
10% | 10% | 10% improvement |
14.7% improvement Above Target |
10% | Team member safety significantly improved across FY22 with TRIFR improving by 14.7%. |
|
| People – mysay |
10% | 10% | 2pp improvement |
3pp improvement Above Target |
10% | Team member engagement increased by three percentage points and we achieved a four percentage point increase in ‘our company values the mental health of its team members’ score. |
|
| Customer – NPS |
10% | 10% | 1.9 point improvement |
3.6pp decrease Below threshold |
0% | NPS was negatively impacted as a result of supply chain challenges which affected availability for customers. |
|
| Overall Performance |
100% (80% of TFC) |
150% (120% of TFC) |
103.5% (82.8% of TFC) |
Other Executive KMP share the same financial measures as the Managing Director and CEO, except the Chief Financial Officer who has a
Group cash realisation metric instead of an Online Sales metric. The Group cash realisation metric was achieved in full for FY22. Strategic
and non-financial measures for Other Executive KMP are also aligned to the Managing Director and CEO with variations relevant to their
portfolio. For FY22, achievement against strategic and non-financial measures for Other Executive KMP ranged from not achieved to
fully achieved.
4.4 Short-term incentive (STI)
The Group’s STI rewards Executive KMP for the achievement of key short-term performance measures.
The FY22 STI payable for the Executive KMP was assessed against individual balanced scorecards consisting of Financial, Strategic and
Non- financial metrics. The scorecards include a mix of group and functional strategic metrics. The balanced scorecard approach for
Executive KMP provides a simple and transparent approach to highlighting performance priorities, measuring performance outcomes
against each weighted metric, and gives clarity regarding the connection between the performance assessment and reward outcomes.
The scorecards include a ‘Quality and Behaviour’ overlay that considers:
• how the Executive KMP achieved performance aligned with the Group’s values and LEaD behaviours;
• risk, compliance, and reputational matters; and
• the quality of earnings delivered.
The Executive KMP have a target STI opportunity of 80% of TFC. The maximum STI opportunity for Executive KMP is 120% of TFC which
is equivalent to 150% of the target STI opportunity. The FY22 Group Financial performance measures contribute up to 110% of the
target STI opportunity for all Executive KMP (60% at target). The strategic and non-financial measures contribute up to 40% of the
target STI opportunity for all Executive KMP.
Details of the performance measures for the Managing Director and CEO’s calculated balanced scorecard for FY22 are set out in Table 3.
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| When will the FY22 STI award be paid? |
| The cash component of the STI award will be paid in September 2022. The STI equity component will be allocated following the Coles 2022 AGM, where shareholder approval will be sought for the grant to the Managing Director and CEO. |
| What happens if an Executive KMP leaves the organisation prior to payment? |
| In the event of resignation or dismissal for cause or significant underperformance prior to payment of the STI, an Executive KMP will not be eligible for any STI award. |
| What happens if an Executive KMP leaves the organisation before STI equity vests? |
| During the restricted period, if an Executive KMP leaves the organisation in the event of resignation or dismissal for cause or significant underperformance, all shares will be forfeited, unless the Board determines otherwise. In any other circumstances (including by reason of redundancy, permanent disability, death, or ill health) the shares will continue on foot until the usual vesting date, unless the Board determines otherwise. |
| Can the Board amend the STI program? |
| The Board retains discretion to suspend or terminate the program at any time or amend all or any elements of the program up until the date of payment. |
| What was the Performance Period? |
| 28 June 2021 to 26 June 2022 |
| Why were the performance conditions chosen? |
| The Financial measures align with the Company’s strategy and the commitments made to shareholders. In particular, Group EBIT focuses on delivering strong earnings through the business cycle and ensuring strong returns for shareholders. Including sales metrics as well as Group EBIT ensures a strong focus upon our capability to deliver sustainable returns for shareholders in the long-term. Strategic and non-financial metrics align to all three pillars of the Coles strategy: ‘Inspire Customers’, ‘Win Together’ and streamline our business through ‘Smarter Selling’. The Board replaced the ‘Smarter Selling’ strategic performance metric for the Managing Director and CEO in FY22 in favour of a new strategic metric focused on the FY22 key deliverables critical to the successful delivery of the Ocado transformation program, given the significance of this transformation program for all Coles stakeholders. ‘Smarter Selling’ remains a priority for Coles and features in the balanced scorecards for all Other Executive KMP. |
| How were the performance conditions assessed? |
| Performance against the balanced scorecard metrics was assessed by the Board based on the Company’s annual audited results, financial statements and other data provided to the Board. The Board determined this method is the most appropriate way to assess the true performance of the Company’s and the Executive KMP’s contributions to determine remuneration outcomes. |
| What portion of the STI component was deferred into equity? |
| The equity deferred amount is determined once the individual balanced scorecard calculation has been completed and the total STI award is determined (refer Table 4). Fify per cent of the total STI award for the Managing Director and CEO, is deferred into equity and 25% of the total STI award for the Other Executive KMP is deferred into equity. The number of STI Shares that will be granted and subject to deferral is calculated by using the 10-day VWAP up to and including the final day in the Performance Period (ie, 26 June 2022). STI Shares are unable to be traded during the restricted period, being one year for the Other Executive KMP and two years for the Managing Director and CEO. Once the restricted period ends, the restriction is lifed and the Executive KMP may trade these shares in accordance with Coles’ Securities Dealing Policy. |
4.5 Long-term incentive (LTI)
The LTI rewards Executive KMP for the achievement of long-term sustainable returns for shareholders.
For FY22 the LTI component of Executive KMP remuneration was delivered in Performance Rights. The Performance Period for the FY22
LTI runs from 28 June 2021 to 30 June 2024 (FY22 – FY24).
Performance Rights will vest subject to the satisfaction of the following performance conditions measured over the Performance Period:
• 50% of Performance Rights are subject to a cumulative return on capital (‘ROC’) hurdle (‘ROC component’); and
• 50% of Performance Rights are subject to a relative total shareholder return (‘RTSR’) performance hurdle. Coles’ RTSR will be
compared to companies in the S&P ASX100 (‘Comparator Group’) at 28 June 2021.
The Board chose these performance conditions because they provide a direct link between Executive KMP reward and sustained
shareholder returns, to promote further alignment with shareholders.
4.5.1 ROC component
Vesting of the Performance Rights in the ROC component is subject to achievement of at least 95% of the Cumulative ROC target over
the Performance Period.
Cumulative ROC measures the Company’s average annual return on capital over the Performance Period against targets set by the
Board. Cumulative ROC is calculated based on the Company’s audited financial information. The Board will assess Cumulative ROC
afer the end of the Performance Period.
In assessing achievement against the Cumulative ROC performance condition, the Board may have regard to any matters that it
considers relevant and retains discretion to review outcomes to ensure the results are appropriate.
The number of Performance Rights in the ROC component that vest, if any, will then be based on the Group’s Cumulative ROC
performance determined over the Performance Period by reference to the following vesting schedule:
| GROUP CUMULATIVE ROC OVER THE PERFORMANCE PERIOD | % OF PERFORMANCE RIGHTS THAT VEST |
| Equal to or below 95% of the Cumulative ROC target is achieved | 0% |
| Between 95% and 105% of the Cumulative ROC target is achieved | Straight-line pro rata vesting between 0% – 100% |
| Equal to 105% or above of the Cumulative ROC target is achieved | 100% |
The ROC targets are considered by Coles to be commercially sensitive. However, the Board will disclose the relevant vesting outcomes
following the end of the Performance Period.
4.5.2 RTSR component
The number of Performance Rights in the RTSR component that vest, if any, will be based on Coles’ RTSR ranking within the Comparator
Group over the Performance Period, as set out in the following vesting schedule:
4.4.1 FY22 STI award
The Board assessed performance against the calculated balanced scorecards of the Managing Director and CEO and the Other Executive
KMP, to determine any STI award payable. The Board also considered the appropriate application of the ‘Quality and Behaviour’ overlay
to determine the final Executive KMP STI outcomes for FY22 as detailed in Table 4.
Table 4: FY22 Executive KMP STI outcomes
| STI OPPORTUNITY1 | STI AWARDED | STI FORFEITED4 |
|||||
| NAME | TARGET 80% | MAXIMUM 120% |
$ | % OF TFC | CASH2 | EQUITY3 | (%) |
| Current | |||||||
| Steven Cain | $1,720,000 | $2,580,000 | $1,780,364 | 82.8% | $890,182 | $890,182 | 31.0% |
| SR (Charlie) Elias5 | $429,808 | $644,712 | $487,874 | 52.7% | $365,906 | $121,968 | 24.3% |
| Leah Weckert6 | $796,000 | $1,194,000 | $893,461 | 89.8% | $670,096 | $223,365 | 25.2% |
| Matthew Swindells | $714,000 | $1,071,000 | $796,178 | 89.2% | $597,134 | $199,044 | 25.7% |
| Former | |||||||
| Greg Davis7 | $714,000 | $1,071,000 | $767,618 | 86.0% | $767,618 | – | 28.3% |
1 The minimum STI opportunity was nil.
2 The FY22 cash component of the STI will be paid on or about 15 September 2022.
3 The FY22 equity component of the STI will be granted in STI Shares following the Coles 2022 AGM, using a 10-day Volume Weighted Average Price (VWAP) for the period
up to and including 26 June 2022 of $17.19. Shareholder approval will be sought for the grant of equity to the Managing Director and CEO at the Coles 2022 AGM.
4 As a percentage of STI maximum opportunity.
5 The STI opportunity and STI awarded to Charlie Elias is reflective of his pro-rata opportunity and payment aligned with his 1 December 2021 commencement date.
The full time equivalent of STI awarded to Charlie is 90.8% of TFC.
6 The STI awarded to Leah Weckert considers achievements in both her prior role of Chief Financial Officer and her current role of Chief Executive, Commercial & Express.
7 Greg Davis ceased as KMP on 14 April 2022 and remains employed until 14 October 2022 during which time he remains subject to obligations under his employment
contract. Therefore, Greg’s STI is reflective of his full year entitlement. The amount shown as cash includes $191,904 that would normally be granted in STI Shares,
however due to Greg’s impending cessation date this amount will be deferred into cash and payment aligned to the normal vesting date of STI Shares for all other
Executive KMP.
4.4.2 Other terms of the FY22 Short term incentive (STI)
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| How can the Board apply discretion to claw back outcomes? |
| The Board has broad claw back powers to determine that any Performance Rights may lapse, any shares allocated on vesting are forfeited, or that the Executive KMP is required to pay as a debt the net proceeds of the sale of shares or dividends in certain circumstances (For example the Executive KMP has acted fraudulently or dishonestly, has engaged in gross misconduct, brought the Group into disrepute, or breached their obligations to the Group). This protects Coles against the payment of benefits where participants have acted inappropriately. |
| What happens if there is a change of control? |
| Under the Offer terms, the Board may determine in its absolute discretion that some or all the Executive KMP’s Performance Rights will vest or cease to be subject to restrictions on a likely change of control. Where there is an actual change in control of the Company then, unless the Board determines otherwise, unvested Performance Rights will vest on a pro rata basis (based on the proportion of the Performance Period that has elapsed). |
| What restrictions are there on dealing in the Performance Rights? |
| Executive KMP must not sell, transfer, encumber, hedge, or otherwise deal with Performance Rights. Executive KMP will be free to deal with the shares allocated on vesting of the Performance Rights, subject to the requirements of Coles’ Securities Dealing Policy. |
| How was the LTI award delivered? |
| The LTI award was delivered in Performance Rights. Each Performance Right entitles the Executive KMP to one ordinary share in the Company on vesting. The Board retains a discretion to make a cash equivalent payment in lieu of an allocation of shares. Performance Rights vest subject to achievement of relevant performance conditions and were allocated at no cost to the Executive KMP, and no amount is payable on vesting. |
| When were Performance Rights allocated? |
| The Performance Rights for all Executive KMP under the FY22 LTI plan were granted on 9 December 2021 following the Coles 2021 AGM (at which the grant made to the Managing Director and CEO was approved for the purposes of ASX Listing Rule 10.14 and details of which are published in this FY22 Remuneration Report). |
| How were Performance Rights allocated? |
| The number of Performance Rights allocated to the Executive KMP was determined by dividing each Executive KMP’s LTI opportunity by the VWAP of Coles shares trading on the ASX over the 10 trading days up to and including 27 June 2021, rounded up to the nearest whole number. |
| How are the performance conditions assessed? |
| RTSR performance is independently assessed over the Performance Period against the constituents of the Comparator Group. ROC is calculated using Coles’ audited financial results. These assessment methods are designed to safeguard the integrity of the performance assessment process and ensure the accuracy of underlying information. |
| When does vesting occur? |
| Following testing, the Board will determine the number of Performance Rights to vest, which is expected to occur in late August 2024. Details regarding the vesting of the Performance Rights will be included in the FY24 Remuneration Report. If the anticipated vesting date falls within a Blackout Period (as defined within the Company’s Securities Dealing Policy), vesting will be delayed until the end of that period. Following testing, any Performance Rights that do not vest will lapse. No retesting of the performance conditions is permitted. |
| What happens if an Executive KMP ceases employment? |
| In the event of resignation or dismissal for cause or significant underperformance, all unvested Performance Rights will lapse, unless the Board determines otherwise. In any other circumstances (including by reason of redundancy, permanent disability, death, or ill health), a pro rata number of Performance Rights (based on the proportion of the Performance Period that has been served) will remain on foot and subject to the original terms of offer, as though the Executive KMP had not ceased employment, unless the Board determines otherwise. |
| Do Performance Rights have voting rights? |
| No. Prior to vesting, Performance Rights do not entitle Executive KMP to voting rights. |
| Are dividends paid on Performance Rights? |
| Executive KMP do not have an entitlement to dividends prior to vesting. Afer testing against the performance conditions, Executive KMP will receive a dividend equivalent amount related to the vested Performance Rights only. The dividend equivalent amount will be delivered in additional shares, equal in value to that of dividends that would have been paid on the vested Performance Rights had the Executive KMP been the owner of Coles shares during the period from the Performance Rights grant date to the vesting date. There is no dividend payable on any Performance Rights that do not vest. The Board retains a discretion to settle the dividend equivalent amount in cash. |
4.5.5 FY20 LTI vesting outcome
On 29 November 2019, Executive KMP were granted Performance Rights relating to their FY20 LTI award. The Performance Period for
the award was 1 July 2019 to 26 June 2022.
The Performance Rights were subject to two vesting conditions (as well as a service condition):
• 50% of the Performance Rights were subject to the Group’s cumulative ROC (pre-AASB16) performance over the Performance Period; and
• 50% of the Performance Rights were subject to the RTSR condition, measured over the Performance Period. The Company’s TSR was
compared to a comparator group of the companies in the ASX100 (Comparator Group) at 30 June 2019.
Table 5: Testing of performance hurdles
Based on testing of each performance hurdle, the following vesting will occur on 1 September 2022 in relation to the FY20 LTI award.
| WEIGHTING | THRESHOLD 0% vest |
TARGET 50% vest |
MAX 100% vest |
RESULT | % VEST | |
| Cumulative ROC | 50% | 95% of target | 100% of target | 105% of target | 110.9% | 100% |
| RTSR | 50% | n/a | 50th percentile | 75th percentile | 84.3 percentile | 100% |
| OVERALL VESTING | 100% | 100% |
As a result of the overall vesting outcome, the below number of shares will vest to each of the Exectuive KMP on 1 September 2022. The
total number of shares includes both the conversion of performance rights to shares, and shares allocated in consideration of the
dividend equivalent amount.
| NAME | NUMBER OF SHARES |
| Current 1 | |
| Steven Cain | 300,217 |
| Leah Weckert | 116,411 |
| Matthew Swindells | 98,031 |
| Former | |
| Greg Davis | 107,222 |
1 Charlie Elias was not eligible for the FY20 LTI plan.
Further details regarding each performance hurdle in Table 5 is provided as follows:
Cumulative ROC (pre-AASB16): The ROC exceeded the stretch targets set by the Board on a cumulative basis over the three-year
Performance Period and resulted in 100% of this component of the LTI vesting as detailed below:
| ROC | FY20 | FY21 | FY22 | CUMULATIVE PERFORMANCE |
| % of target achieved | 108.3% | 114.8% | 109.5% | 110.9% |
Group EBIT was delivered in excess of target in each of the three years, supported by strong trade performance and Smarter Selling
savings. Supermarkets and Liquor outperformance offset Coles Express performance, which was adversely impacted by COVID-19
lockdowns resulting in subdued fuel volumes. Through this period the capital expenditure program has expanded, including the
increasing transformational spend on Witron and Ocado in FY22.
RTSR: The Company performed at 84.3 percentile against the Comparator Group which resulted in 100% of this component of the
LTI vesting.
Based on the calculated performance, overall vesting outcomes of 100% was achieved. The Board reviewed the vesting outcomes for
each metric and considered the Company’s strong performance over the period and returns to shareholders. The Board determined
that the vesting outcomes are appropriate.
| COLES RTSR RANK IN THE COMPARATOR GROUP | % OF PERFORMANCE RIGHTS THAT VEST |
| Below the 50th percentile | 0% |
| Equal to the 50th percentile | 50% |
| Between 50th percentile and 75th percentile | Straight-line pro rata vesting between 50% – 100% |
| Equal to the 75th percentile or above | 100% |
Following testing, any Performance Rights that do not vest will lapse. There is no re-testing of awards. The Board has discretion to
adjust the comparator group to take account of events such as takeovers, mergers and demergers.
4.5.3 FY22 LTI outcomes
Performance Rights granted under the FY22 LTI will be tested following the end of FY24 (the end of the Performance Period). Details of the
number of Performance Rights granted under the FY22 LTI are included in section 4.7. Details of equity awards granted to Executive KMP in
prior years (including applicable performance conditions and vesting dates) have been disclosed in previous Remuneration Reports.
4.5.4 Other terms of the FY22 LTI
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4.7 Summary of Executive KMP shareholding and Performance Rights
Table 7.1 and 7.2 show the movements of Coles Performance Rights, Restricted Shares, Performance Shares and STI Shares, held
beneficially, by each Executive KMP during FY22. No other shares were acquired as remuneration during the year. Details of Executive
KMP’s holdings of ordinary shares are provided in Table 11.
Table 7.1: Restricted, Performance and STI Shares
| MOVEMENTS DURING THE FINANCIAL PERIOD | ADDITIONAL INFORMATION |
||||||
| NAME | SHARE TYPE | BALANCE OF SHARES HELD AT 27 JUNE 2021 |
GRANTED DURING THE YEAR |
VESTED/ RELEASED DURING THE YEAR |
LAPSED DURING THE YEAR |
CLOSING BALANCE AT 26 JUNE 20225 |
ACCOUNTING FAIR VALUE OF GRANT YET TO VEST ($)1 |
| Current | |||||||
| Steven Cain | Restricted Shares2 | 85,057 | – | (85,057) | – | – | – |
| Performance Shares3 | 85,057 | – | (83,058) | (1,999) | – | – | |
| STI Shares4 | 75,866 | 64,514 | – | – | 140,380 | 2,522,695 | |
| SR (Charlie) Elias | STI Shares | – | – | – | – | – | – |
| Leah Weckert | Restricted Shares2 | 36,453 | – | (36,453) | – | – | – |
| Performance Shares3 | 36,453 | – | (35,596) | (857) | – | – | |
| STI Shares4 | 17,305 | 15,734 | (17,305) | – | 15,734 | 280,852 | |
| Matthew Swindells | Restricted Shares2 | 26,327 | – | (26,327) | – | – | – |
| Performance Shares3 | 26,327 | – | (25,708) | (619) | – | – | |
| STI Shares4 | 14,354 | 13,261 | (14,354) | – | 13,261 | 236,709 | |
| Former | |||||||
| Greg Davis | Restricted Shares2 | 32,402 | – | (32,402) | – | – | – |
| Performance Shares3 |
32,402 | – | (31,640) | (762) | – | – | |
| STI Shares4 | 14,610 | 14,071 | (14,610) | – | 14,071 | 251,167 |
1 The fair value of STI Shares for Steven Cain was $17.63 at the grant date of 10 November 2021. The fair value of STI Shares at the grant date of 9 December 2021 was
$17.85 for Other Executive KMP. The fair value of Restricted Shares, Performance Shares and STI Shares is an estimate of the total maximum value of grants in future
financial years. Restricted Shares, Performance Shares and STI Shares are subject to the satisfaction of conditions and therefore the minimum total value of the
awards for future financial years is nil.
2 Restricted Shares noted relate to the FY19 Executive Restricted Share (ERS) offer which vested during FY22. Restricted Shares are time based only and full details of
this award are detailed in the FY19 Remuneration Report.
3 Performance Shares vest based on the achievement of performance conditions aligned with RTSR and cumulative EBIT with a ROC gateway. This award vested on 25
August 2021 as per the vesting details set out in Table 7 of the FY21 Remuneration Report, Table 7. Full details regarding this award are detailed in the FY19
Remuneration Report.
4 STI Shares are time-based only. Greg Davis’ closing balance is reflective of balance at date of cessation as KMP.
5 No Restricted, Performance or STI Shares were held nominally by the Executive KMP or their related parties as at 26 June 2022.
Table 7.2: Performance Rights
| MOVEMENTS DURING THE FINANCIAL PERIOD | ADDITIONAL INFORMATION |
|||||
| NAME | BALANCE OF RIGHTS HELD AT 27 JUNE 2021 |
RIGHTS ALLOCATED AS REMUNERATION |
RIGHTS VESTED DURING THE YEAR |
RIGHTS FORFEITED / LAPSED DURING THE YEAR |
CLOSING BALANCE AT 26 JUNE 2022 |
ACCOUNTING FAIR VALUE OF GRANT YET TO VEST ($)1 |
| Current | ||||||
| Steven Cain2 | 499,034 | 225,976 | – | – | 725,010 | 9,334,657 |
| SR (Charlie) Elias | – | 83,334 | – | – | 83,334 | 1,086,675 |
| Leah Weckert | 193,503 | 89,640 | – | – | 283,143 | 3,609,993 |
| Matthew Swindells | 167,505 | 80,406 | – | – | 247,911 | 3,161,839 |
| Former | ||||||
| Greg Davis3 | 178,228 | 80,406 | – | (71,273) | 187,361 | 2,376,552 |
1 The fair value of Performance Rights is an estimate of the total maximum value of grants in future financial years. The fair value of Steven Cain’s FY22 Performance
Rights at the grant date of 10 November 2021 was $9.27 for the RTSR component and $15.95 for the ROC component. The fair value of the Other Executive KMP’s FY22
Performance Rights at the grant date of 9 December 2021 was $9.87 for RTSR component and $16.21 for ROC component. The Performance Rights are subject to the
satisfaction of conditions and therefore the minimum total value of the awards for future financial years is nil.
2 Approval from shareholders for the issue of these Performance Rights to Steven Cain was obtained for the purpose of ASX Listing Rule 10.14 at the Coles 2021 AGM.
3 Greg Davis’ closing balance is reflective of the balance at the date of cessation as KMP.
4.6 Summary of remuneration received by Executive KMP (statutory remuneration)
Table 6 details the nature and amount of each element of remuneration of the Executive KMP. There were no transactions or loans between Executive KMP and the Company or any of its subsidiaries during
FY22.
Table 6: Executive KMP remuneration
| SHORT-TERM | LONG-TERM | POST EMPLOYMENT |
VALUE OF SHARE-BASED PAYMENTS2 |
||||||
| NAME | YEAR | BASE SALARY $ |
OTHER BENEFITS1 $ |
CASH STI $ |
ACCRUED LEAVE BENEFITS $ |
SUPERANNUATION BENEFITS $ |
PERFORMANCE RIGHTS $ |
SHARES $ |
TOTAL COMPENSATION $ |
| Current | |||||||||
| Steven Cain | 2022 | 2,113,932 | 3,424 | 890,182 | 50,576 | 23,568 | 2,947,786 | 1,224,463 | 7,253,931 |
| 2021 | 2,078,306 | 2,597 | 1,074,150 | 157,917 | 21,694 | 2,047,926 | 1,313,004 | 6,695,594 | |
| SR (Charlie) Elias3 | 2022 | 302,441 | 122 | 365,906 | 46,282 | 5,892 | 395,155 | 38,808 | 1,154,606 |
| Leah Weckert4 | 2022 | 960,182 | 1,366 | 670,096 | (29,442) | 23,568 | 1,139,998 | 326,642 | 3,092,410 |
| 2021 | 928,306 | 1,499 | 785,888 | 65,904 | 21,694 | 770,050 | 576,758 | 3,150,099 | |
| Matthew Swindells | 2022 | 858,307 | 1,904 | 597,134 | 28,319 | 23,568 | 998,475 | 271,192 | 2,778,900 |
| 2021 | 815,806 | 1,549 | 662,363 | 73,642 | 21,694 | 667,645 | 469,052 | 2,711,751 | |
| Former | |||||||||
| Greg Davis5 | 2022 | 681,566 | 552,705 | 767,618 | 22,917 | 17,676 | 1,279,806 | 232,932 | 3,555,219 |
| 2021 | 853,306 | 1,779 | 702,844 | 28,030 | 21,694 | 710,018 | 516,304 | 2,833,975 | |
| TOTAL 2022 | 4,916,428 | 559,521 | 3,290,936 | 118,652 | 94,272 | 6,761,220 | 2,094,037 | 17,835,066 | |
| TOTAL 2021 | 4,675,724 | 7,424 | 3,225,245 | 325,493 | 86,776 | 4,195,639 | 2,875,118 | 15,391,419 |
1 Other benefits include costs associated with employment (including any applicable fringe benefits tax).
2 The amounts represent the accounting fair value of the grants of Restricted Shares, Performance Shares, and STI Shares. If the performance conditions are not met, the Executive KMP will not be entitled to the shares. Refer to section 4.5 for further
details for the grants, their performance conditions and Performance Periods. The amounts for FY21 include legacy Wesfarmers share awards allocated to Leah Weckert, Matthew Swindells and Greg Davis prior to the demerger pursuant to Wesfarmers
share plans, that Leah Weckert, Matthew Swindells and Greg Davis received as Wesfarmers employees and are being expensed over the relevant performance period. In accordance with the Accounting Standards the accounting fair value of the grants
is recognised proportionally over the grant’s Performance Period.
3 Charlie Elias’ remuneration for FY22 is reflective of the period he was Executive KMP, from 28 February 2022, with cash STI reflecting the full award. Total base salary from commencement was $521,907.
4 Leah Weckert retired as Chief Financial Officer effective 27 February 2022. She then commenced as Chief Executive, Commercial & Express on 15 April 2022. However, Leah’s remuneration for FY22 is reflective of remuneration received for the full
financial year.
5 Short term other benefits for Greg Davis includes fixed remuneration, superannuation, executive development and supporting program benefits provided to Greg from 14 April 2022 until his cessation of employment on 14 October 2022, subject to his
ongoing employment obligations being met. The expensing of Greg’s performance rights has been fully accelerated in FY22 in accordance with the Accounting Standards.
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5.4 Other transactions and balances
During FY22, Mr Freudenstein sold livestock to Coles via a livestock agent for an aggregate amount of $81,335. The transaction occurred
on an arm’s length basis with normal commercial terms.
Section 6: Ordinary shareholdings
6.1 Non-executive Director Ordinary Shareholdings
Table 10 shows the shareholdings and movements in shares held directly, or indirectly, by each Non-executive Director, including their
related parties during FY22. No shares held by Executive KMP were held nominally.
Table 10: Non-executive Director Ordinary Shareholdings
| NAME | BALANCE OF SHARES HELD AT 27 JUNE 2021 |
SHARES ACQUIRED |
SHARES DISPOSED |
CLOSING BALANCE AS AT 26 JUNE 2022 |
MINIMUM SHAREHOLDING REQUIREMENT ACHIEVED |
| James Graham | 500,188 | – | – | 500,188 | ✓ |
| David Cheesewright | 20,000 | – | – | 20,000 | ✓ |
| Jacqueline Chow | 20,000 | – | – | 20,000 | ✓ |
| Abigail Cleland | 19,816 | – | – | 19,816 | ✓ |
| Richard Freudenstein | 19,000 | – | – | 19,000 | ✓ |
| Paul O’Malley | 3,809 | – | – | 3,809 | ✓ |
| Wendy Stops | 25,000 | – | – | 25,000 | ✓ |
| TOTAL | 607,813 | – | – | 607,813 |
6.2 Executive KMP Ordinary Shareholdings
Table 11 shows the shareholdings and movements in shares held directly, or indirectly, by each KMP, including their related parties
during FY22.
Table 11: Executive KMP Ordinary Shareholdings
| NAME | BALANCE OF SHARES HELD AT 27 JUNE 2021 |
SHARES ACQUIRED |
SHARES DISPOSED |
CLOSING BALANCE AS AT 26 JUNE 2022 |
MINIMUM SHAREHOLDING REQUIREMENT ACHIEVED |
| Current | |||||
| Steven Cain | 50,000 | 168,115 | – | 218,115 | ✓ |
| SR (Charlie) Elias1 | – | – | – | – | Not Yet Achieved |
| Leah Weckert | 36,330 | 89,354 | – | 125,684 | ✓ |
| Matthew Swindells | 14,529 | 66,389 | – | 80,918 | ✓ |
| Former | |||||
| Greg Davis2 | 69,244 | 78,652 | – | 147,896 | ✓ |
| TOTAL | 170,103 | 402,510 | – | 572,613 |
1 Opening balance reflects shareholding at 1 December 2021 for Charlie Elias.
2 Greg Davis’ closing balance is reflective of the balance at the date of cessation as KMP on 14 April 2022.
Section 5: FY22 Non-executive Director remuneration
5.1 Non-executive Director remuneration framework
Non-executive Director remuneration is designed to ensure the Company can attract and retain suitably qualified and experienced
Non- executive Directors.
Non-executive Directors receive a base fee for their service as a Director of the Company, and other than the Chairman, an additional
fee for membership of, or for chairing a Board committee. Non-executive Directors do not receive shares or any performance-related
incentives as part of their remuneration from the Company. A minimum shareholding policy applies to Non- executive Directors (see
section 2.1.2).
Non-executive Directors are reimbursed for travel and other expenses reasonably incurred when attending meetings of the Board or
conducting the business of the Company.
The People and Culture Committee reviews and makes recommendations to the Board with respect to Non-executive Directors’ fees
and Board committee fees.
5.2 Current Non-executive Director remuneration policy
The Non-executive Director remuneration policy enables the Company to attract and retain high-quality directors with relevant
experience. The remuneration policy is reviewed annually by the People and Culture Committee. Non-executive Director fees are set
afer consideration of fees paid by companies of comparable size, complexity, industry, and geography. They reflect the qualifications
and experience necessary to discharge the Board’s responsibilities.
The maximum aggregate fee limit is $3.6 million. This was approved by the shareholders of the Company at the 2018 AGM prior to listing.
There were no increases to Board and Committee fees in FY22. Table 8 sets out the Board and committee fees (inclusive of superannuation)
for FY22.
Table 8: Board and committee fees (inclusive of superannuation) for FY22
| BOARD AND COMMITTEE FEES | CHAIR | MEMBER |
| Board | $695,0001 | $220,000 |
| Audit and Risk Committee | $55,000 | $27,000 |
| People and Culture Committee | $55,000 | $27,000 |
| Nomination Committee | No fee | No fee |
1 The Chairman of the Board does not receive Committee fees in addition to his Board fee.
5.3 FY22 Non-executive Director remuneration
Table 9 outlines the remuneration for the Non-executive Directors of Coles during FY22. There were no transactions or loans between
Non-executive Directors and the Company or any of its subsidiaries during FY22.
Table 9: FY22 Non-executive Director remuneration
| NAME | FINANCIAL YEAR |
BASE AND COMMITTEE FEES (EXCLUDING SUPERANNUATION) $ |
OTHER BENEFITS4 $ |
SUPER ANNUATION BENEFITS $ |
TOTAL COMPENSATION $ |
| James Graham | 2022 | 671,432 | 215 | 23,568 | 695,215 |
| 2021 | 673,306 | 628 | 21,694 | 695,628 | |
| David Cheesewright1 | 2022 | 246,655 | – | 345 | 247,000 |
| 2021 | 247,000 | – | – | 247,000 | |
| Jacqueline Chow | 2022 | 224,267 | 434 | 22,733 | 247,434 |
| 2021 | 225,306 | 807 | 21,694 | 247,807 | |
| Abigail Cleland2 | 2022 | 247,000 | 497 | – | 247,497 |
| 2021 | 241,576 | 396 | 5,424 | 247,396 | |
| Richard Freudenstein2 | 2022 | 269,108 | – | 5,892 | 275,000 |
| 2021 | 264,153 | – | 10,847 | 275,000 | |
| Paul O’Malley3 | 2022 | 251,432 | – | 23,568 | 275,000 |
| 2021 | 189,979 | – | 16,271 | 206,250 | |
| Wendy Stops | 2022 | 224,267 | 1,498 | 22,733 | 248,498 |
| 2021 | 226,818 | 1,595 | 20,182 | 248,595 | |
| TOTAL 2022 | 2,134,161 | 2,644 | 98,839 | 2,235,644 | |
| TOTAL 20215 | 2,068,138 | 3,426 | 96,112 | 2,167,676 |
1 Due to David Cheesewright residing outside of Australia, superannuation obligations are only payable for any time worked in Australia.
2 Approval was obtained from the ATO by individual Non-executive Directors to be exempt from making superannuation contributions due to superannuation
obligations being met by other employers.
3 Paul O’Malley was appointed to the Board on 1 October 2020, his remuneration for FY21 is disclosed from this date to 27 June 2021.
4 Other benefits include costs associated with directorships (including any applicable fringe benefits tax).
5 Zlatko Todorcevski retired from the Board effective 30 September 2020. His total compensation for FY21 was $68,810.
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CO
d20a Septe
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Auditor’s Independence Declaration to the Directors of
Coles Group Limited
As lead auditor for the audit of the financial report of Coles Group Limited for the financial year ended
26 June 2022, I declare to the best of my knowledge and belief, there have been:
| a. b. |
No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; No contraventions of any applicable code of professional conduct in relation to the audit; and |
b. No contraventions of any applicable code of professional conduct in relation to the audit; and
c. No non-audit services provided that contravene any applicable code of professional conduct in
relation to the audit.
This declaration is in respect of Coles Group Limited and the entities it controlled during the financial
year.
Ernst & Young
David Shewring
Partner
24 August 2022
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Auditor’s Independence Declaration to the Directors of
Coles Group Limited
As lead auditor for the audit of the financial report of Coles Group Limited for the financial year ended
26 June 2022, I declare to the best of my knowledge and belief, there have been:
a. No contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit;
c. No non-audit services provided that contravene any applicable code of professional conduct in
relation to the audit.
This declaration is in respect of Coles Group Limited and the entities it controlled during the financial
year.
Ernst & Young
David Shewring
Partner
24 August 2022
Coles Group Limited 2022 Annual Report
85
Financial Report
Consolidated Financial Statements
Income Statement
Balance Sheet
Statement of Changes in Equity
Cash Flow Statement
Notes to the Consolidated Financial Statements
Basis of preparation and accounting policies
Section 1: Performance
1.1 Segment reporting
1.2 Earnings per share
1.3 Sales revenue
1.4 Administration expenses
1.5 Financing costs
1.6 Income tax
Section 2: Assets and liabilities
2.1 Cash and cash equivalents
2.2 Trade and other receivables
2.3 Other assets
2.4 Inventories
2.5 Property, plant and equipment
2.6 Intangible assets
2.7 Leases
2.8 Trade and other payables
2.9 Provisions
Section 3: Capital
3.1 Interest-bearing liabilities
3.2 Contributed equity and reserves
3.3 Dividends paid and proposed
Section 4: Financial risk
4.1 Impairment of non-financial assets
4.2 Financial risk management
4.3 Financial instruments
Section 5: Group structure
5.1 Equity accounted investments
5.2 Assets held for sale
5.3 Subsidiaries
5.4 Parent entity information
Section 6: Unrecognised items
6.1 Commitments
6.2 Contingencies
Section 7: Other disclosures
7.1 Related party disclosures
7.2 Employee share plans
7.3 Auditor’s remuneration
7.4 New accounting standards and interpretations
7.5 Events afer the reporting period
Directors’ Declaration
Independent Auditor’s Report
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Balance sheet
as at 26 June 2022
| 2022 | 2021 | ||
| NOTES | $m | $m | |
| Assets | |||
| Current assets | |||
| Cash and cash equivalents | 2.1 | 589 | 787 |
| Trade and other receivables | 2.2 | 470 | 368 |
| Inventories | 2.4 | 2,448 | 2,107 |
| Income tax receivable | 42 | – | |
| Assets held for sale | 5.2 | 82 | 85 |
| Other assets | 2.3 | 120 | 87 |
| Total current assets | 3,751 | 3,434 | |
| Non-current assets | |||
| Property, plant and equipment | 2.5 | 4,807 | 4,463 |
| Right-of-use assets | 2.7 | 7,199 | 7,288 |
| Intangible assets | 2.6 | 1,864 | 1,698 |
| Deferred tax assets | 1.6 | 822 | 873 |
| Equity accounted investments | 5.1 | 219 | 220 |
| Other assets | 2.3 | 174 | 147 |
| Total non-current assets | 15,085 | 14,689 | |
| Total assets | 18,836 | 18,123 | |
| Liabilities | |||
| Current liabilities | |||
| Trade and other payables | 2.8 | 4,335 | 3,660 |
| Provisions | 2.9 | 854 | 950 |
| Income tax payable | – | 60 | |
| Lease liabilities | 2.7 | 914 | 897 |
| Other | 312 | 252 | |
| Total current liabilities | 6,415 | 5,819 | |
| Non-current liabilities | |||
| Interest-bearing liabilities | 3.1 | 1,095 | 1,142 |
| Provisions | 2.9 | 424 | 458 |
| Lease liabilities | 2.7 | 7,767 | 7,859 |
| Other | 11 | 32 | |
| Total non-current liabilities | 9,297 | 9,491 | |
| Total liabilities | 15,712 | 15,310 | |
| Net assets | 3,124 | 2,813 | |
| Equity | |||
| Contributed equity | 3.2 | 1,636 | 1,585 |
| Reserves | 95 | 69 | |
| Retained earnings | 1,393 | 1,159 | |
| Total equity | 3,124 | 2,813 |
The accompanying notes form part of the consolidated financial statements.
Income Statement
for the 52 weeks ended 26 June 2022
| 2022 | 2021 | ||
| NOTES | $m | $m | |
| Sales revenue | 1.3 | 39,369 | 38,585 |
| Other operating revenue | 377 | 370 | |
| Total operating revenue | 39,746 | 38,955 | |
| Cost of sales | (29,210) | (28,773) | |
| Gross profit | 10,536 | 10,182 | |
| Other income | 96 | 88 | |
| Administration expenses | 1.4 | (8,756) | (8,392) |
| Share of net loss from equity accounted investments | 5.1 | (7) | (5) |
| Earnings before interest and tax (EBIT) | 1,869 | 1,873 | |
| Financing costs | 1.5 | (396) | (427) |
| Profit before income tax | 1,473 | 1,446 | |
| Income tax expense | 1.6 | (425) | (441) |
| Profit for the period | 1,048 | 1,005 | |
| Profit attributable to: | |||
| Equity holders of the parent entity | 1,048 | 1,005 | |
| Earnings per share (EPS) attributable to equity holders of the parent: | |||
| Basic EPS (cents) | 1.2 | 78.8 | 75.3 |
| Diluted EPS (cents) | 1.2 | 78.7 | 75.3 |
| Other comprehensive income | |||
| Items that may be reclassified to profit or loss: | |||
| Net movement in the fair value of cash flow hedges | 31 | (9) | |
| Income tax effect | 1.6 | (9) | 3 |
| Other comprehensive income/(loss) which may be reclassified to profit or loss in subsequent periods |
22 | (6) | |
| Total comprehensive income attributable to: | |||
| Equity holders of the parent entity | 1,070 | 999 |
The accompanying notes form part of the consolidated financial statements.
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| 2022 | 2021 | ||
| NOTES | $m | $m | |
| Cash flows from operating activities | |||
| Receipts from customers | 41,887 | 41,138 | |
| Payments to suppliers and employees | (38,309) | (37,510) | |
| Interest paid | (41) | (47) | |
| Interest component of lease payments | (363) | (390) | |
| Interest received | 1 | 4 | |
| Income tax paid | (485) | (358) | |
| Net cash flows from operating activities | 2.1 | 2,690 | 2,837 |
| Cash flows used in investing activities | |||
| Purchase of property, plant and equipment and intangibles | (1,272) | (1,279) | |
| Proceeds from sale of property, plant and equipment | 136 | 181 | |
| Net investments in joint venture and associate | 5.1 | (6) | (8) |
| Net cash flows used in investing activities | (1,142) | (1,106) | |
| Cash flows used in financing activities | |||
| Proceeds from borrowings | 5,082 | 7,232 | |
| Repayment of borrowings | (5,129) | (7,444) | |
| Payment of principal component of lease payments | (901) | (891) | |
| Dividends paid | (798) | (807) | |
| Purchase of shares under Equity Incentive Plan | – | (26) | |
| Net cash flows used in financing activities | (1,746) | (1,936) | |
| Net decrease in cash and cash equivalents | (198) | (205) | |
| Cash at beginning of period | 787 | 992 | |
| Cash at end of the period | 589 | 787 |
The accompanying notes form part of the consolidated financial statements.
Cash Flow Statement
for the 52 weeks ended 26 June 2022
| SHARE CAPITAL |
SHARES HELD IN TRUST |
SHARE BASED PAYMENTS RESERVE |
CASH FLOW HEDGE RESERVE |
RETAINED EARNINGS |
TOTAL | |
| $m | $m | $m | $m | $m | $m | |
| 2022 | ||||||
| Balance at beginning of period | 1,655 | (70) | 88 | (19) | 1,159 | 2,813 |
| Profit for the period | – | – | – | – | 1,048 | 1,048 |
| Other comprehensive income | – | – | – | 22 | – | 22 |
| Total comprehensive income for the period | – | – | – | 22 | 1,048 | 1,070 |
| Dividends paid | – | – | – | – | (814) | (814) |
| Issue of shares to satisfy the dividend reinvestment plan |
16 | – | – | – | – | 16 |
| Issue of shares to Trust | 24 | (24) | – | – | – | – |
| Transfer of shares to employees under the employee equity incentive plan |
– | 21 | (21) | – | – | – |
| Share-based payments expense | – | – | 25 | – | – | 25 |
| Transfers | – | 14 | – | – | – | 14 |
| Balance at end of period | 1,695 | (59) | 92 | 3 | 1,393 | 3,124 |
| 2021 | ||||||
| Balance at beginning of period | 1,655 | (44) | 56 | (13) | 961 | 2,615 |
| Profit for the period | – | – | – | – | 1,005 | 1,005 |
| Other comprehensive income | – | – | – | (6) | – | (6) |
| Total comprehensive income for the period | – | – | – | (6) | 1,005 | 999 |
| Dividends paid | – | – | – | – | (807) | (807) |
| Share-based payments expense | – | – | 32 | – | – | 32 |
| Transfer of shares to employees under employee equity incentive plan |
– | – | – | – | – | – |
| Purchase of shares to satisfy employee equity incentive plan |
– | (26) | – | – | – | (26) |
| Balance at end of period | 1,655 | (70) | 88 | (19) | 1,159 | 2,813 |
The accompanying notes form part of the consolidated financial statements.
Statement of Changes in Equity
for the 52 weeks ended 26 June 2022
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Basis of preparation and accounting policies (continued)
The notes
The Notes include information which is required to understand the consolidated financial statements and is material and relevant to
the operations, financial performance and position of the Group.
Information is considered material and relevant if, for example:
• the amount in question is significant because of its size or nature
• it is important for understanding the results of the Group
• it helps to explain the impact of significant changes in the Group’s business
• it relates to an aspect of the Group’s operations that is important to its future performance
The Notes are organised into the following sections:
1. PERFORMANCE: this section provides information on the performance of the Group, including segment results, earnings per share
and income tax.
2. ASSETS AND LIABILITIES: this section details the assets used in the Group’s operations and the liabilities incurred as a result.
3. CAPITAL: this section provides information relating to the Group’s capital structure and financing.
4. FINANCIAL RISK: this section details the Group’s exposure to various financial risks, explains how these risks may impact the Group’s
financial performance or position, and details the Group’s approach to managing these risks.
5. GROUP STRUCTURE: this section provides information relating to subsidiaries and other material investments of the Group.
6. UNRECOGNISED ITEMS: this section provides information about items that are not recognised in the consolidated financial
statements but could potentially have a significant impact on the Group’s financial performance or position in the future.
7. OTHER DISCLOSURES: this section provides other disclosures required by Australian Accounting Standards that are considered
relevant to understanding the Group’s financial performance or position.
Basis of consolidation
In preparing these consolidated financial statements, subsidiaries are consolidated from the date the Group gains control until the date
on which control ceases. The Group’s share of results of its equity accounted investments is included in the consolidated financial
statements from the date that significant influence or joint control commences until the date that significant influence or joint control
ceases. All intercompany transactions are eliminated.
The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting
policies.
Foreign currency
These consolidated financial statements are presented in Australian dollars, which is the functional currency of the Group. Foreign
currency transactions are translated into the functional currency using the exchange rates at the transaction date. Foreign exchange
gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities
denominated in foreign currencies at reporting date exchange rates are generally recognised in profit or loss. They are deferred in
equity if they relate to qualifying cash flow hedges.
Accounting policies
Accounting policies that summarise the classification, recognition and measurement basis of financial statement line items and that
are relevant to the understanding of the consolidated financial statements are provided throughout the Notes.
Rounding of amounts
The amounts contained in the Financial Report have been rounded to the nearest million dollars (unless specifically stated to be
otherwise) under the option available to the Company under ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191. The Company is an entity to which this legislative instrument applies.
The Financial Report of Coles Group Limited (‘the Company’) in respect of the Company and the entities it controlled at the reporting
date or during the 52-week period ended 26 June 2022 (collectively, ‘Coles’ or ‘the Group’) was authorised for issue in accordance with
a resolution of the Directors on 24 August 2022. The comparative period is for the 52-week period ended 27 June 2021.
Reporting entity
The Company is a for-profit company limited by shares which is incorporated and domiciled in Australia and listed on the Australian
Securities Exchange (ASX).
The nature of the operations and principal activities of the Group are described in Note 1.1 Segment Reporting.
Basis of preparation and accounting policies
The Financial Report is a general purpose financial report, which has been prepared in accordance with Australian Accounting Standards
issued by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001 (Cth). The Financial Report also complies
with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
The consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments measured
at fair value as explained in the notes to the consolidated financial statements (‘the Notes’).
The accounting policies adopted are consistent with those of the previous period. Refer to Note 7.4 New accounting standards and
interpretations.
This Financial Report presents reclassified comparative information where required for consistency with the current period’s
presentation.
Key judgements, estimates and assumptions
The preparation of the financial statements requires judgement and the use of estimates and assumptions in applying the Group’s
accounting policies, which affect amounts reported for assets, liabilities, income and expenses.
Judgements, estimates and assumptions are continuously evaluated and are based on the following:
• historical experience
• current market conditions
• reasonable expectations of future events
Actual results may differ from these judgements, estimates and assumptions. Uncertainty about these judgements, estimates and
assumptions could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities in future periods.
The Group has incorporated specific judgements, estimates and assumptions relating to the ongoing impacts of COVID-19 in determining
the amounts recognised in the financial statements based on conditions existing at the reporting date, recognising uncertainty still
exists in relation to its timeframe, the measures to control it and its economic impact.
The key areas involving judgement or significant estimates and assumptions are set out below:
| NOTE | JUDGEMENTS | |
| Note 2.7 | Leases | Determining the lease term |
| Note 5.1 | Equity accounted investments | Control and significant influence |
| NOTE | ESTIMATES AND ASSUMPTIONS | |
| Note 2.4 | Inventories | Net realisable value, Commercial income |
| Note 2.7 | Leases | Incremental borrowing rate |
| Note 2.9 | Provisions | Employee benefits, Self-insurance, Restructuring |
| Note 4.1 | Impairment of non-financial assets | Assessment of recoverable amount |
| Note 6.2 | Contingencies | Contingent liabilities |
| Note 7.2 | Employee share plans | Valuation of share-based payments |
Detailed information about each of these judgements, estimates and assumptions is included in the Notes together with information
about the basis of calculation for each affected line item in the financial statements.
Notes to the Consolidated Financial Statements
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1.2 Earnings per share (EPS)
| 2022 | 2021 | |
| EPS attributable to equity holders of the Company | ||
| Basic EPS (cents) | 78.8 | 75.3 |
| Diluted EPS (cents) | 78.7 | 75.3 |
| Profit for the period ($m) | 1,048 | 1,005 |
| Weighted average number of ordinary shares for basic EPS (shares, million) | 1,330 | 1,334 |
| Weighted average number of ordinary shares for diluted EPS (shares, million) | 1,331 | 1,335 |
Calculation methodology
EPS is profit for the period attributable to ordinary equity holders of the Company, divided by the weighted average number of ordinary
shares on issue, adjusted in FY22 to exclude shares held in trust during the period.
Diluted EPS is calculated on the same basis except it includes the impact of any potential commitments the Group has to issue shares in
the future.
Between the reporting date and the issue date of the Financial Report, there have been no transactions involving ordinary shares or
potential ordinary shares that would impact the calculation of EPS disclosed in the table above.
1.3 Sales revenue
Sale of goods
The Group operates a network of supermarkets, retail liquor stores and convenience stores, as well as online platforms. Revenue is
recognised by the Group when it is the principal in the sales transaction. Revenue from the sale of goods is recognised when control of
the goods has transferred to the customer. For goods purchased in-store, control of the goods transfers to the customer at the point of
sale. For goods purchased online, control of the goods transfers to the customer upon delivery, or when collected by the customer.
Revenue comprises the fair value of consideration received or receivable for the sale of goods and is recorded net of discounts and
goods and services tax (GST).
1.4 Administration expenses
| 2022 | 2021 | |
| $m | $m | |
| Employee benefits expense | 5,085 | 4,898 |
| Occupancy and overheads | 734 | 707 |
| Depreciation and amortisation1 | 1,524 | 1,513 |
| Marketing expenses | 241 | 242 |
| Net impairment reversal | (10) | (3) |
| Other store expenses | 610 | 623 |
| Other administration expenses | 572 | 412 |
| Total administration expenses | 8,756 | 8,392 |
1 Total depreciation and amortisation for FY22 is $1,571 million (FY21: $1,559 million), the remaining depreciation and amortisation is included within cost of sales.
Employee benefits expense is comprised of:
| 2022 | 2021 | |
| $m | $m | |
| Remuneration, bonuses and on-costs | 4,652 | 4,493 |
| Superannuation expense | 408 | 369 |
| Share-based payments expense | 25 | 36 |
| Total employee benefits expense | 5,085 | 4,898 |
Employee benefits expense
The Group’s accounting policy for liabilities associated with employee benefits is set out in Note 2.9 Provisions. The policy relating to
share-based payments is set out in Note 7.2 Employee share plans.
1. Performance
|
1. Segment reporting
The Group has identified its operating segments based on internal reporting to the Managing Director and Chief Executive Officer (the
chief operating decision-maker). The Managing Director and Chief Executive Officer regularly reviews the Group’s internal reporting to
assess performance and allocate resources across the operating segments. The segments identified offer different products and
services and are managed separately.
The Group’s reportable segments are set out below:
| REPORTABLE SEGMENT | DESCRIPTION |
| Supermarkets | Fresh food, groceries and general merchandise retailing (includes Coles Online and Coles Financial Services) |
| Liquor | Liquor retailing, including online delivery services |
| Express | Convenience store operations and commission agent for retail fuel sales |
Other business operations that are not separately reportable (such as Property), as well as costs associated with enterprise functions
(such as Insurance and Treasury) are included in ‘Other’.
There are varying levels of integration between operating segments. This includes the common usage of property, services and
administration functions. Financing costs and income tax are managed on a Group basis and are not allocated to operating segments.
EBIT is the key measure by which management monitors the performance of the segments.
The Group does not have operations in other geographic areas or economic exposure to any individual customer that is in excess of 10%
of sales revenue.
| SUPERMARKETS | LIQUOR | EXPRESS | OTHER | CONSOLIDATED | |
| $m | $m | $m | $m | $m | |
| 2022 | |||||
| Sales revenue | 34,624 | 3,613 | 1,132 | – | 39,369 |
| Segment EBIT | 1,715 | 163 | 42 | (51) | 1,869 |
| Financing costs | (396) | ||||
| Profit before income tax | 1,473 | ||||
| Income tax expense | (425) | ||||
| Profit for the period | 1,048 | ||||
| Share of net loss from equity accounted investments included in EBIT |
(7) | ||||
| 2021 | |||||
| Sales revenue | 33,868 | 3,525 | 1,192 | – | 38,585 |
| Segment EBIT | 1,702 | 165 | 67 | (61) | 1,873 |
| Financing costs | (427) | ||||
| Profit before income tax | 1,446 | ||||
| Income tax expense | (441) | ||||
| Profit for the period | 1,005 | ||||
| Share of net loss from equity accounted investments included in EBIT |
(5) |
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1.6 Income tax (continued)
Reconciliation of the Group’s applicable tax rate to the effective tax rate
| 2022 $m |
2021 $m |
|
| Profit before income tax | 1,473 | 1,446 |
| At Australia’s corporate tax rate of 30.0% (2021: 30.0%) | 442 | 434 |
| Adjustments in respect of income tax of previous periods | (5) | 10 |
| Share of results of joint venture | 2 | 2 |
| Non-deductible expenses for income tax purposes | 2 | 2 |
| Non-assessable income for income tax purposes | (11) | (7) |
| Recognition of prior year capital losses | (5) | – |
| Income tax expense reported in the Income Statement1 | 425 | 441 |
1 At an effective income tax rate of 28.9% (2021: 30.5%).
Tax consolidation
The Company and its 100% owned Australian resident subsidiaries formed an income tax consolidated group with effect from 31
December 2018.
The Company is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing agreement which
operates to manage joint and several liability for group tax liabilities amongst group members as well as enable group members to
leave the group clear of future group tax liabilities. Members of the group have also entered into a taxation funding agreement which
provides that each member of the tax consolidated group pay a tax equivalent amount to or from the parent in accordance with their
notional current tax liability or current tax asset. Such amounts are reflected in amounts receivable from or payable to the parent
company in their accounts and are settled as soon as practicable afer lodgement of the consolidated tax return and payment of the tax
liability.
Deferred income tax balances recognised in the Balance Sheet
| 2022 | OPENING BALANCE $m |
CHARGED TO PROFIT OR LOSS $m |
CREDITED TO OCI $m |
OTHER $m |
CLOSING BALANCE $m |
| Provisions | 61 | 6 | – | – | 67 |
| Employee benefits | 257 | (27) | – | – | 230 |
| Trade and other payables | 50 | (22) | – | – | 28 |
| Inventories | 45 | 8 | – | – | 53 |
| Property, plant and equipment | 153 | 18 | – | – | 171 |
| Intangible assets | 18 | (18) | – | – | – |
| Lease Liabilities | 2,627 | (268) | – | 245 | 2,604 |
| Cash flow hedges | 9 | (1) | (9) | – | (1) |
| Other individually insignificant balances | 12 | (6) | – | – | 6 |
| Deferred tax assets | 3,232 | (310) | (9) | 245 | 3,158 |
| Accelerated depreciation for tax purposes | 116 | 9 | – | – | 125 |
| Right-of-use assets | 2,186 | (271) | – | 245 | 2,160 |
| Other assets | 9 | (1) | – | – | 8 |
| Other individually insignificant balances | 48 | (5) | – | – | 43 |
| Deferred tax liabilities | 2,359 | (268) | – | 245 | 2,336 |
| Net deferred tax assets | 873 | (42) | (9) | – | 822 |
1.4 Administration expenses (continued)
Share-based payments expense includes both awards granted by the Company that will be settled in equity of the Company and in the
prior period awards granted by Wesfarmers (pre demerger) to employees of the Group that were settled in equity of Wesfarmers.
Retirement benefit obligations
The Group contributes to a number of superannuation funds on behalf of its employees, and the Group’s legal or constructive obligation
is limited to these contributions. Contributions payable by the Group are recognised as an expense in the Income Statement when
incurred.
1.5 Financing costs
| 2022 | 2021 | |
| $m | $m | |
| Interest on debt and borrowings | 16 | 23 |
| Interest on lease liabilities | 363 | 390 |
| Other finance related costs | 17 | 14 |
| Total financing costs | 396 | 427 |
Financing costs
Financing costs directly attributable to the acquisition, construction or production of an asset, that necessarily takes more than 12
months to get ready for its intended use or sale, are capitalised as part of the cost of the asset. All other financing costs are expensed
in the period in which they are incurred.
1.6 Income tax
The major components of income tax expense in the Income Statement are set out below:
| 2022 | 2021 | |
| $m | $m | |
| Current income tax expense | 391 | 449 |
| Adjustment in respect of current income tax of previous periods | (8) | 13 |
| Deferred income tax relating to origination and reversal of temporary differences | 39 | (18) |
| Adjustment in respect of deferred income tax of previous periods | 3 | (3) |
| Income tax expense reported in the Income Statement | 425 | 441 |
The components of income tax expense recognised in Other Comprehensive Income (OCI) are set out below:
| 2022 $m |
2021 $m |
|
| Deferred tax related to items recognised in OCI during the period: | ||
| Net (profit)/loss on revaluation of cash flow hedges | (9) | 3 |
| Deferred income tax charged to OCI | (9) | 3 |
The tax expense included in the Income Statement consists of current and deferred income tax.
| CURRENT INCOME TAX IS: | DEFERRED INCOME TAX IS: |
| • the expected tax payable on taxable income for the period • calculated using tax rates enacted or substantively enacted at the reporting date • inclusive of any adjustment to income tax payable or recoverable in respect of previous periods |
• recognised using the liability method • based on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for taxation purposes • calculated using the tax rates that are expected to apply in the period when the liability is settled or the asset realised, based on the tax rates that have been enacted or substantively enacted by the reporting date |
Both current and deferred income tax are charged or credited to the Income Statement. However, when it relates to items charged or
credited directly to the Statement of Changes in Equity or Other Comprehensive Income, the tax is recognised in equity, or OCI,
respectively.
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2. Assets and liabilities
|
2.1 Cash and cash equivalents
Cash and cash equivalents are comprised of the following:
| 2022 $m |
2021 $m |
|
| Cash on hand and in transit | 559 | 576 |
| Cash at bank and on deposit | 30 | 211 |
| Total cash and cash equivalents | 589 | 787 |
All receivables from EFT, credit card and debit card point of sale transactions during the period are classified as cash and cash
equivalents.
For the purpose of the Cash Flow Statement, cash and cash equivalents includes cash on hand and in transit, at bank and on deposit,
net of outstanding bank overdrafs which are repayable on demand.
Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits earn interest at the respective
short-term deposit rates.
Reconciliation of profit for the period to net cash flows from operating activities
| 2022 $m |
2021 $m |
|
| Profit for the period | 1,048 | 1,005 |
| Adjustments for: | ||
| Depreciation and amortisation | 1,571 | 1,559 |
| Net impairment reversal | (10) | (3) |
| Net loss on disposal of non-current assets | 14 | 12 |
| Share of net loss of equity accounted investments | 7 | 5 |
| Share-based payments expense | 25 | 32 |
| Other | 5 | 13 |
| Changes in assets and liabilities net of the effects of acquisitions and disposals of businesses: | ||
| (Increase) / decrease in inventories | (341) | 59 |
| (Increase) / decrease in trade and other receivables | (102) | 66 |
| Decrease / (increase) in prepayments | 4 | (12) |
| Increase in other assets | (64) | (32) |
| Decrease / (increase) in deferred tax assets | 51 | (24) |
| (Increase) / decrease in income tax receivable | (102) | 102 |
| Increase / (decrease) in trade and other payables | 675 | (77) |
| (Decrease) / increase in provisions | (130) | 75 |
| Increase in other liabilities | 39 | 57 |
| Net cash flows from operating activities | 2,690 | 2,837 |
1.6 Income tax (continued)
| 2021 | OPENING BALANCE $m |
CHARGED TO PROFIT OR LOSS $m |
CREDITED TO OCI $m |
OTHER $m |
CLOSING BALANCE $m |
| Provisions | 56 | 5 | – | – | 61 |
| Employee benefits | 249 | 8 | – | – | 257 |
| Trade and other payables | 34 | 16 | – | – | 50 |
| Inventories | 45 | – | – | – | 45 |
| Property, plant and equipment | 139 | 14 | – | – | 153 |
| Intangible assets | 17 | 1 | – | – | 18 |
| Lease Liabilities | 2,725 | (268) | – | 170 | 2,627 |
| Cash flow hedges | 6 | – | 3 | – | 9 |
| Other individually insignificant balances | 19 | (7) | – | – | 12 |
| Deferred tax assets | 3,290 | (231) | 3 | 170 | 3,232 |
| Accelerated depreciation for tax purposes | 96 | 20 | – | – | 116 |
| Right-of-use assets | 2,297 | (272) | – | 161 | 2,186 |
| Other assets | – | – | – | 9 | 9 |
| Other individually insignificant balances | 48 | – | – | – | 48 |
| Deferred tax liabilities | 2,441 | (252) | – | 170 | 2,359 |
| Net deferred tax assets | 849 | 21 | 3 | – | 873 |
Tax assets and liabilities
Deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which deductible temporary
differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered.
Deferred tax assets and liabilities are offset against each other when there is a legally enforceable right to set off current taxation assets
against current taxation liabilities and it is the intention to settle these on a net basis.
The Group has unrecognised deferred tax assets relating to temporary differences arising from its investments in Loyalty Pacific Pty Ltd
(operator of the Flybuys loyalty program) and Queensland Venue Co. Pty Ltd (QVC), and capital losses from disposal of capital gains tax
assets. Deferred tax assets have not been recognised in relation to these amounts as the Group has determined that at the reporting
date, it is not probable that capital gains will be available against which the Group can utilise these benefits. The unrecognised deferred
tax asset is $107 million (2021: $109 million).
An uncertain tax treatment is any tax treatment applied by the Group where there is uncertainty over whether it will be accepted by the
relevant tax authority. If it is not probable that the treatment will be accepted, the effect of the uncertainty is reflected in the period in
which that determination is made (for example, by recognising an additional tax liability). The Group measures the impact of the
uncertainty using the method that best predicts the resolution of the uncertainty: either the most likely amount method or the expected
value method. The judgements and estimates made to recognise and measure the effect of uncertain tax treatments are reassessed
whenever circumstances change or when there is new information that affects those judgements.
The Group determined, based on its tax compliance, that it is probable that its tax treatments applied at 26 June 2022 will be accepted
by the taxation authorities.
Goods and services tax (GST)
Revenue, expenses and assets are recognised net of GST, except:
• when the GST incurred on the sale or purchase of assets or services is not payable to or recoverable from the taxation authority,
in which case GST is recognised as part of the revenue or the expense item or as part of the cost of acquisition of the asset; or
• when receivables are stated with the amount of GST included.
The net amount of GST recoverable from or payable to the taxation authority is included as part of receivables or payables in the
Balance Sheet. Commitments and contingencies are disclosed net of the amount of GST recoverable from or payable to the taxation
authority.
Cash flows are included in the Cash Flow Statement on a gross basis and the GST component of cash flows arising from investing and
financing activities where recoverable or payable to the taxation authority is classified as part of operating cash flows.
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2.4 Inventories
Inventories comprise goods held for resale and are valued at the lower of cost and net realisable value, which is the estimated selling
price less estimated costs to sell.
The cost of inventory is based on purchase cost, afer deducting certain types of commercial income and including logistics and store
remuneration incurred in bringing inventories to their present location and condition.
Volume-related supplier rebates, and supplier promotional rebates where they exceed spend on promotional activities, are accounted
for as a reduction in the cost of inventory and recognised in the Income Statement when the inventory is sold.
|
Commercial income
Commercial income represents various discounts or rebates provided by suppliers. These include:
• settlement discounts for the purchase of inventory
• discounts based on purchase or sales volumes
• contributions towards promotional activity for a supplier’s product
Depending on the type of arrangement with the supplier, commercial income will either be deducted from the cost of inventory (where
it relates to the purchase of inventory) or recognised as a reduction in related expenses (where it relates to the sale of goods).
Amounts due from suppliers are recognised within trade receivables, except in cases where the Group has the legal right and the
intention to offset, in which case only the net amount receivable or payable is presented. Refer to Note 4.3 Financial instruments for
details of amounts offset in the Balance Sheet.
|
2.2 Trade and other receivables
Trade and other receivables are comprised of the following:
| 2022 $m |
2021 $m |
|
| Trade receivables1 | 386 | 315 |
| Other receivables | 95 | 63 |
| 481 | 378 | |
| Allowance for expected credit losses | (11) | (10) |
| Total trade and other receivables | 470 | 368 |
1 Includes commercial income due from suppliers of $117 million (2021: $119 million).
Trade receivables and other receivables are classified as financial assets held at amortised cost.
Trade receivables
Trade receivables are initially recognised at the amount due and subsequently at amortised cost using the effective interest method,
less an allowance for expected credit losses (impairment provision). The carrying value of trade and other receivables, less impairment
provisions, is considered to approximate fair value, due to the short-term nature of the receivables.
Impairment of trade receivables
The collectability of trade and other receivables is reviewed on an ongoing basis. Individual debts which are known to be uncollectable
are written off when identified.
The Group recognises an impairment provision based upon anticipated lifetime losses of trade receivables. The anticipated lifetime
losses are determined with reference to historical experience and are regularly reviewed and updated.
The amount of the impairment loss is recognised in the Income Statement within ‘administration expenses’.
2.3 Other assets
Other assets are comprised of the following:
| 2022 $m |
2021 $m |
|
| Prepayments | 83 | 85 |
| Other assets | 37 | 2 |
| Total other current assets | 120 | 87 |
| Prepayments | 15 | 17 |
| Other assets | 159 | 130 |
| Total other non-current assets | 174 | 147 |
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2.6 Intangible assets
The Group’s intangible assets comprise licences, sofware and goodwill.
Licences and sofware
Licences and sofware are measured initially at acquisition cost or costs incurred to develop the asset. Intangible assets acquired in a
business combination are recognised at fair value at the acquisition date. Following initial recognition, intangible assets with finite
useful lives are carried at cost less accumulated amortisation and accumulated impairment losses. They are amortised on a straightline basis over their estimated useful lives. Intangible assets with indefinite useful lives are not amortised. Instead, they are tested for
impairment annually or more frequently if events or changes in circumstances indicate they may be impaired.
Licences have been assessed as having indefinite lives on the basis that the licences are expected to be renewed in line with business
continuity requirements.
For internally generated sofware, research costs are expensed as incurred. Development expenditure is capitalised when management
has the intention to develop the asset, it is probable that future economic benefits will flow to the Group and the cost can be reliably
measured.
In respect to cloud computing arrangements, the Group assesses whether the arrangement contains a lease and if not, whether the
arrangement provides the Group with a resource that it can control. Costs associated with implementation are then assessed as to
whether they can be capitalised in accordance with relevant accounting standards.
Goodwill
Goodwill recognised by the Group has arisen as a result of business combinations and represents the future economic benefits that
arise from assets that are not capable of being individually identified and separately recognised.
Goodwill is initially measured as the amount the Group has paid in acquiring a business over and above the fair value of the individual
assets and liabilities acquired. Goodwill is considered to have an indefinite useful economic life. It is therefore not amortised but is
instead tested annually for impairment, or more frequently if events or changes in circumstances indicate that it might be impaired.
Goodwill is carried at cost less any accumulated impairment losses and, for the purpose of impairment testing, is allocated to cash
generating units.
Refer to Note 4.1 Impairment of non-financial assets for further details on impairment testing.
2.5 Property, plant and equipment
Property, plant and equipment is carried at cost less accumulated depreciation and any recognised impairment. Cost comprises expenditure that is directly attributable to the acquisition of the item and
subsequent costs incurred that are eligible for capitalisation. Repairs and maintenance costs are charged to the Income Statement during the period in which they are incurred. Property, plant and
equipment is depreciated on a straight-line basis to its residual value over its expected useful life.
| LAND $m |
BUILDINGS $m |
PLANT & EQUIPMENT $m |
LEASEHOLD IMPROVEMENTS $m |
TOTAL $m |
|
| Useful life (range) | Not applicable | 20 – 40 years | 3 – 20 years | Term of lease | |
| 2022 | |||||
| Cost | 419 | 268 | 7,944 | 1,236 | 9,867 |
| Accumulated depreciation and impairment | – | (10) | (4,368) | (682) | (5,060) |
| Carrying amount at end of period | 419 | 258 | 3,576 | 554 | 4,807 |
| Carrying amount at beginning of period | 349 | 301 | 3,313 | 500 | 4,463 |
| Additions | 103 | 10 | 790 | 135 | 1,038 |
| Transfer to assets held for sale | (39) | (27) | (16) | – | (82) |
| Depreciation | – | (4) | (489) | (75) | (568) |
| (Impairment)/Reversal | 20 | – | (6) | – | 14 |
| Disposals and write-offs1 | (14) | (22) | (16) | (6) | (58) |
| Carrying amount at end of period | 419 | 258 | 3,576 | 554 | 4,807 |
| Construction work in progress included above | – | 51 | 991 | 170 | 1,212 |
| 2021 | |||||
| Cost | 349 | 310 | 7,300 | 1,139 | 9,098 |
| Accumulated depreciation and impairment | – | (9) | (3,987) | (639) | (4,635) |
| Carrying amount at end of period | 349 | 301 | 3,313 | 500 | 4,463 |
| Carrying amount at beginning of period | 413 | 231 | 3,009 | 474 | 4,127 |
| Additions | 19 | 126 | 816 | 108 | 1,069 |
| Transfer to assets held for sale | (43) | (32) | (9) | (1) | (85) |
| Depreciation | – | (6) | (480) | (76) | (562) |
| (Impairment)/Reversal | 9 | – | (1) | – | 8 |
| Disposals and write-offs1 | (49) | (18) | (22) | (5) | (94) |
| Carrying amount at end of period | 349 | 301 | 3,313 | 500 | 4,463 |
| Construction work in progress included above | – | 148 | 661 | 108 | 917 |
1 Net loss on disposal of property, plant and equipment during the period was $14 million (2021: $12 million net loss).
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2.7 Leases
The Group has lease agreements for properties and various items of machinery, vehicles and other equipment used in its operations.
Set out below are the carrying amounts of recognised right-of-use assets and movements during the period:
| 2022 | 2021 | |||||
| PROPERTY LEASES $m |
NON PROPERTY LEASES $m |
TOTAL $m |
PROPERTY LEASES $m |
NON PROPERTY LEASES $m |
TOTAL $m |
|
| At beginning of period | 7,176 | 112 | 7,288 | 7,541 | 119 | 7,660 |
| Additions | 183 | 25 | 208 | 298 | 31 | 329 |
| Other remeasurements1 | 598 | – | 598 | 199 | – | 199 |
| Depreciation expense | (861) | (34) | (895) | (862) | (38) | (900) |
| At end of period | 7,096 | 103 | 7,199 | 7,176 | 112 | 7,288 |
1 Includes reasonably certain options and remeasurements, net of leases terminated.
Set out below are the carrying amounts of recognised lease liabilities and movements during the period:
| 2022 $m |
2021 $m |
|
| At beginning of period | 8,756 | 9,083 |
| Additions | 208 | 329 |
| Other remeasurements1 | 618 | 235 |
| Accretion of interest | 363 | 390 |
| Payments | (1,264) | (1,281) |
| At end of period | 8,681 | 8,756 |
| Current | 914 | 897 |
| Non-current | 7,767 | 7,859 |
1 Includes reasonably certain options and remeasurements, net of leases terminated.
The maturity analysis of lease liabilities is disclosed in Note 4.2 Financial risk management.
Variable lease payments based on sales
A number of the Group’s retail property lease agreements contain variable payment terms that are linked to sales. These lease payments
are based on a percentage of sales recorded by a particular store. The specific percentage rent adjustment mechanism varies by
individual lease agreement. Variable payment terms are used for a variety of reasons, including minimising the fixed costs base for
newly established stores. Variable lease payments are recognised in profit or loss in the period in which the condition that triggers
those payments occurs and are generally payable for future periods in the lease term.
The following provides information on the Group’s variable lease payments, including the magnitude in relation to fixed payments:
| 2022 | 2021 | |||||
| FIXED PAYMENTS $m |
VARIABLE PAYMENTS $m |
TOTAL $m |
FIXED PAYMENTS $m |
VARIABLE PAYMENTS $m |
TOTAL $m |
|
| Leases with lease payments based on sales |
587 | 47 | 634 | 567 | 42 | 609 |
Extension options
Extension options are included in the majority of property leases across the Group. Where practicable, the Group seeks to include
extension options when negotiating leases to provide flexibility and align with business needs. Leases may contain multiple extension
options and are exercisable only by the Group and not by the lessors.
Extension options are only reflected in the lease liability when it is reasonably certain they will be exercised. When assessing if an option
is reasonably certain to be exercised, a number of factors are considered including the option expiry date, whether formal approval to
extend the lease has been obtained, store trading performance and the strategic importance of the site. Where a lease contains multiple
extension options, only the next option is considered in the assessment. Option periods range from 1 to 15 years.
2.6 Intangible assets (continued)
| GOODWILL $m |
SOFTWARE $m |
LICENCES $m |
TOTAL $m |
|
| Useful life (range) | Indefinite | 5 years | Indefinite | |
| 2022 | ||||
| Cost | 1,160 | 1,775 | 29 | 2,964 |
| Accumulated amortisation and impairment | – | (1,100) | – | (1,100) |
| Carrying amount at end of period | 1,160 | 675 | 29 | 1,864 |
| Carrying amount at beginning of period | 1,156 | 515 | 27 | 1,698 |
| Additions | 4 | 272 | 2 | 278 |
| Disposals and write-offs | – | (1) | – | (1) |
| Impairment | – | (3) | – | (3) |
| Amortisation | – | (108) | – | (108) |
| Carrying amount at end of period | 1,160 | 675 | 29 | 1,864 |
| Development work in progress included above | – | 361 | – | 361 |
| 2021 | ||||
| Cost | 1,156 | 1,524 | 28 | 2,708 |
| Accumulated amortisation and impairment | – | (1,009) | (1) | (1,010) |
| Carrying amount at end of period | 1,156 | 515 | 27 | 1,698 |
| Carrying amount at beginning of period | 1,156 | 414 | 27 | 1,597 |
| Additions | – | 203 | – | 203 |
| Disposals and write-offs | – | – | – | – |
| Impairment | – | (5) | – | (5) |
| Amortisation | – | (97) | – | (97) |
| Carrying amount at end of period | 1,156 | 515 | 27 | 1,698 |
| Development work in progress included above | – | 220 | – | 220 |
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2.7 Leases (continued)
|
|
Group as lessor
The Group leases out some of its freehold properties and sub-leases some of its right-of-use assets. The Group has classified these
leases as operating leases because they do not transfer all of the risks and rewards incidental to ownership of the assets.
The undiscounted lease payments to be received are set out below:
| 2022 $m |
2021 $m |
|
| Within one year | 29 | 23 |
| Between one and five years | 59 | 49 |
| More than five years | 37 | 22 |
| Total | 125 | 94 |
Rental income is accounted for on a straight-line basis over the lease term and is included in ‘other operating revenue’ in the Income
Statement. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased
asset and recognised over the lease term on the same basis as rental income. Variable lease income not dependent on an index or rate
is recognised as revenue in the period in which it is earned. The Group recognised income of $31 million for the period with respect to
subleasing of its right-of-use assets (2021: $21 million).
2.8 Trade and other payables
Trade and other payables are comprised of the following:
| 2022 $m |
2021 $m |
|
| Trade payables | 3,211 | 2,794 |
| Other payables | 1,124 | 866 |
| Total trade and other payables | 4,335 | 3,660 |
Trade payables are non-interest-bearing and are recognised initially at fair value and subsequently measured at amortised cost using
the effective interest method.
2.7 Leases (continued)
Of the Group’s lease portfolio, 70% of leases have extension options (2021: 72%). Of those leases, 30%1 have an extension option
included in the calculation of the lease liability at 26 June 2022 (2021: 30%).
The following amounts have been recognised in the Income Statement:
| 2022 $m |
2021 $m |
|
| Depreciation of right-of-use assets | 895 | 900 |
| Interest expense on lease liabilities | 363 | 390 |
| Expenses relating to short-term leases (included in administration expenses) | 2 | 6 |
| Variable lease payments based on sales (included in administration expenses) | 47 | 42 |
| Other variable lease payments (included in administration expenses) | 3 | 7 |
| Total amount recognised in the Income Statement | 1,310 | 1,345 |
The Group recognised a total gain of $17 million relating to four sale and leaseback transactions during the period (2021: gain of
$25 million).
Group as lessee
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control
the use of an identified asset for a period of time in exchange for consideration.
The Group applies a single recognition and measurement approach for all leases, except for short-term leases (leases with a term of 12
months or less) and leases of low-value assets. The Group recognises lease liabilities to make future lease payments and right-of-use
assets representing the right to use the underlying assets from the date the leased asset is available for use by the Group.
Each lease payment is apportioned between the liability and financing costs. Financing costs are recognised in the Income Statement
over the lease term so as to produce a constant periodic rate of interest on the remaining liability.
The right-of-use asset is depreciated on a straight-line basis over the shorter of the asset’s useful life and the lease term (which includes
options that are considered ‘reasonably certain’). Payments associated with short-term leases and leases of low-value assets are
expensed when incurred in the Income Statement.
Cash payments for the principal portion of the lease liability are presented within financing activities in the Cash Flow Statement, while
payments relating to short-term leases, low-value assets and variable lease components not included in the measurement of the lease
liability are presented within cash flows from operating activities.
Lease liabilities are initially measured at net present value and comprise the following:
• fixed payments (including in-substance fixed payments), less any lease incentives
• variable lease payments based on an index or rate, using the index or rate at the commencement date
• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option
• payment of termination penalties if the lessee is reasonably certain to terminate the lease and incur penalties.
If the interest rate implicit in the lease cannot be readily determined, the lease payments are discounted using the lessee’s incremental
borrowing rate at the lease commencement date
Right-of-use assets are measured at cost and comprise the following:
• the initial measurement of the lease liability
• any lease payments made at or before the commencement date, less any lease incentives received
• any initial direct costs
• any restoration costs
Right-of-use assets are also subject to impairment testing. Refer to the accounting policies in Note 4.1 Impairment of non-financial
assets.
1 54% of these leases contain one or more future extension options not included in the lease liability (2021: 51%).
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2.9 Provisions (continued)
Provisions are:
• recognised when the Group has a legal or constructive obligation as a result of a past event, it is probable that cash will be required
to settle the obligation and the amount can be reliably estimated;
• measured at the present value of the estimated cash outflow required to settle the obligation.
Where a provision is non-current, and the effect is material, the nominal amount is discounted. The discount is recognised as a financing
cost in the Income Statement.
| PROVISION | KEY ESTIMATES |
| Employee benefits Provisions for employee entitlements to annual leave, long service leave and employee incentives (where the Group does not have an unconditional right to defer payment for at least twelve months afer the reporting date) are recognised within the current provision for employee benefits and represent the amount which the Group has a present obligation to pay, resulting from employees’ services up to the reporting date. All other short-term employee benefit obligations are presented as payables. Liabilities for long service leave where the Group has an unconditional right to defer payment for at least twelve months afer the reporting date are recognised within the non-current provision for employee benefits. |
Employee benefits provisions are based on a number of estimates including, but not limited to: • expected future wages and salaries • attrition (applicable to long service leave provisions only) • discount rates • expected salary related payments, interest and on-costs following a review of the pay arrangements for award-covered salaried team members |
| Self-insurance The Group is self-insured for workers compensation and certain general liability risks. The Group seeks external actuarial advice in determining self-insurance provisions. Provisions are discounted and are based on claims reported and an estimate of claims incurred but not reported. These estimates are reviewed bi-annually, and any reassessment of these estimates will impact self-insurance expense. |
Self-insurance provisions are based on a number of estimates including, but not limited to: • discount rates • future inflation • average claim size • claims development • risk margin |
| Restructuring Restructuring provisions are recognised when restructuring has either commenced or has raised a valid expectation in those affected, and the Group has a detailed formal plan identifying: • the business or part of the business impacted • the location and approximate number of employees impacted • an estimate of the associated costs • the timeframe for restructuring activities |
Restructuring provisions are based on a number of estimates including, but not limited to: • number of employees impacted • employee tenure and costs • restructure timeframes • discount rates |
2.9 Provisions
| 2022 $m |
2021 $m |
|
| Current | ||
| Employee benefits | 716 | 778 |
| Restructuring provision | 6 | 51 |
| Self-insurance liabilities | 114 | 110 |
| Other | 18 | 11 |
| Total current provisions | 854 | 950 |
| Non-current | ||
| Employee benefits | 72 | 91 |
| Restructuring provision | 96 | 104 |
| Self-insurance liabilities | 256 | 263 |
| Total non-current provisions | 424 | 458 |
Movements in restructuring, self-insurance and other provisions
| RESTRUCTURING $m |
SELF INSURANCE $m |
OTHER $m |
TOTAL $m |
|
| At beginning of period | 155 | 373 | 11 | 539 |
| Arising during the period | 1 | 168 | 7 | 176 |
| Utilised | (37) | (134) | (1) | (172) |
| Unused amounts reversed | (15) | (14) | 1 | (28) |
| Unwind / changes in discount rate | (2) | (23) | – | (25) |
| At end of period | 102 | 370 | 18 | 490 |
| Current | 6 | 114 | 18 | 138 |
| Non-current | 96 | 256 | – | 352 |
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3.2 Contributed equity and reserves (continued)
The following reconciliation shows the total number of ordinary shares on issue less the shares held in trust:
| 2022 | 2021 | |||
| m | $m | m | $m | |
| Share Capital | ||||
| At beginning of period | 1,333.9 | 1,655 | 1,333.9 | 1,655 |
| Issue of shares to satisfy the dividend reinvestment plan | 0.9 | 16 | – | – |
| Issue of shares to Trust | 1.3 | 24 | – | – |
| At end of period | 1,336.1 | 1,695 | 1,333.9 | 1,655 |
| Shares held in trust | ||||
| At beginning of period | (5.4) | (70) | (3.9) | (44) |
| Purchase of shares to satisfy the employee equity incentive plans |
– | – | (1.5) | (26) |
| Issue of shares to Trust | (1.3) | (24) | – | – |
| Transfer of shares to employees under the employee equity incentive plan |
1.5 | 21 | – | – |
| Transfers | – | 14 | – | – |
| At end of period | (5.2) | (59) | (5.4) | (70) |
| Total contributed equity | 1,330.9 | 1,636 | 1,328.5 | 1,585 |
Cash flow hedge reserve
The hedging reserve records the portion of the gain or loss on a cash flow hedging instrument that is determined to be in an effective
hedge relationship. The effective portion of the gain or loss on the hedging instrument is recognised in Other Comprehensive Income
within the cash flow hedge reserve, while any ineffective portion is recognised immediately in the Income Statement.
Share-based payments reserve
The share-based payments reserve reflects the fair value of awards recognised as an expense in the Income Statement.
3.3 Dividends paid and proposed
The Company considers current earnings, future cash flow requirements, targeted credit metrics and availability of franking credits in
determining the amount of dividends to be paid.
Dividends are recognised as a liability in the Balance Sheet in the period in which they are determined by the Board.
| CENTS PER SHARE | TOTAL $m | |||
| 2022 | 2021 | 2022 | 2021 | |
| Fully franked dividends determined and paid during the period | ||||
| Paid final dividend | 28.0 | 27.5 | 373 | 367 |
| Paid interim dividend | 33.0 | 33.0 | 441 | 440 |
| 61.0 | 60.5 | 814 | 807 | |
| Fully franked dividends proposed and unrecognised at reporting date1 |
||||
| Final dividend proposed | 30.0 | 28.0 | 4011 | 374 |
| 30.0 | 28.0 | 4011 | 374 |
1 Estimated final dividend payable, subject to variations in the number of shares up to the record date.
The Company operates a Dividend Reinvestment Plan (DRP) under which eligible holders of ordinary shares are able to reinvest all or
part of their dividend payments into additional fully paid Coles Group Limited shares.
Franking account
| 2022 $m |
2021 $m |
|
| Total franking credits available for subsequent periods based on a tax rate of 30% (2021: 30%) | 558 | 420 |
3. Capital
|
The Group’s capital management strategy aims to ensure the Group has continued access to funding for current and future business
activities by maintaining a mix of equity and debt financing, while maximising returns to shareholders.
The Group’s objective is to maintain investment grade credit metrics to optimise the weighted average cost of capital over the long
term, enable access to long term debt capital markets and build investor confidence.
The Directors consider the capital structure at least twice a year and provide oversight of the Group’s capital management. Capital is
managed through the following:
• repaying or raising debt in line with ongoing business requirements and growth opportunities aligned with the Group’s strategic
objectives
• amount of ordinary dividends paid to shareholders
• raising and returning capital.
3.1 Interest-bearing liabilities
| 2022 $m |
2021 $m |
|
| Non-current | ||
| Bank debt | 50 | 98 |
| Capital market debt | 1,045 | 1,044 |
| Total non-current interest-bearing liabilities | 1,095 | 1,142 |
During the year the Group refinanced its bilateral debt facilities and replaced $1.4 billion of existing facilities with Sustainability Linked
Loans (SLL). The SLL draws a direct line between Coles’ sustainability performance and cost of capital through margin adjustment
incentives by achieving sustainability targets linked to specific metrics. The SLL was undrawn at 26 June 2022.
Interest-bearing loans and borrowings are initially recorded at fair value, net of attributable transaction costs. Subsequent to initial
recognition, interest-bearing loans and borrowings are measured at amortised cost using the effective interest method. Gains and
losses are recognised in the Income Statement when the liabilities are derecognised.
3.2 Contributed equity and reserves
Contributed equity
Contributed equity represents the number of ordinary shares on issue less shares held in trust by the Group. Ordinary shares on issue
are fully paid and carry one vote per share and the right to dividends. Shares held in trust are ordinary shares that have been repurchased
by the Group and are being held to satisfy employee equity incentive plans.
Incremental costs directly attributable to the issue of new shares are recognised as a deduction from equity, net of any related income
tax benefit.
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4.1 Impairment of non-financial assets (continued)
Net impairment reversal for the current and prior period is included in ‘administration expenses’ in the Income Statement as it relates
to the day-to-day management of the Group’s freehold property portfolio and other non-financial assets.
| 2022 | 2021 | |||||
| PROPERTY $m |
OTHER NON FINANCIAL ASSETS $m |
TOTAL $m |
PROPERTY $m |
OTHER NON FINANCIAL ASSETS $m |
TOTAL $m |
|
| Impairment | (4) | (11) | (15) | (15) | (6) | (21) |
| Reversal | 24 | 1 | 25 | 24 | – | 24 |
| Net impairment reversal/ (impairment) |
20 | (10) | 10 | 9 | (6) | 3 |
Recognised impairment
An impairment loss is recognised in the Income Statement if the carrying amount of an asset or a CGU exceeds its recoverable amount.
Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU
and then to reduce the carrying amount of other assets in the CGU.
Reversal of impairment
Where there is an indication that previously recognised impairment losses may no longer exist or may have decreased, the asset is retested for impairment. The impairment loss is reversed only to the extent that the carrying amount of the asset does not exceed the
carrying amount that would have been determined, net of depreciation or amortisation, had no impairment been recognised.
Impairments recognised for goodwill are not reversed.
Goodwill impairment testing
For the purpose of impairment testing, goodwill is allocated to CGUs or groups of CGUs according to the level at which management
monitors goodwill. The FVLCOD valuation methodology was applied to determine the recoverable amount of CGUs.
The following table presents a summary of the goodwill allocation and the key assumptions used in determining the recoverable
amount of each CGU:
| 2022 | 2021 | |||||
| SUPERMARKETS | LIQUOR | EXPRESS | SUPERMARKETS | LIQUOR | EXPRESS | |
| Goodwill allocation ($m) | 986 | 129 | 45 | 986 | 125 | 45 |
| Indefinite life intangible assets ($m) |
– | 29 | – | – | 27 | – |
| Post-tax discount rate (%) | 7.6% | 7.6% | 7.9% | 7.5% | 7.5% | 7.8% |
| Terminal growth rate (%) | 2.8% | 2.8% | nil | 2.7% | 2.7% | nil |
Sensitivity analysis is performed to determine the point at which the recoverable amount is equal to the carrying amount for each CGU.
For the Group’s CGUs, based on current economic conditions and CGU performance, no reasonably possible change in a key assumption
used in the determination of the recoverable value is expected to result in a material impairment.
4. Financial risk
|
4.1 Impairment of non-financial assets
The Group tests property, plant and equipment and intangible assets for impairment to ensure they are not carried above their recoverable
amounts:
• at least annually for goodwill
• where there is an indication that assets may be impaired (which is assessed at least at each reporting date).
These tests are performed by assessing the recoverable amount of each individual asset or, if this is not possible, the recoverable
amount of the cash generating unit (CGU) to which the asset belongs. CGUs are the lowest levels at which assets are grouped and
generate separately identifiable cash inflows. The recoverable amount, measured at the asset or CGU level, is the higher of fair value
less costs of disposal (FVLCOD), or value in use (VIU). A discounted cash flow model is used to determine the recoverable amount under
both FVLCOD and VIU. FVLCOD is based on a market participant approach and is estimated using assumptions that a market participant
would use when pricing the asset or CGU. VIU is determined by discounting the future cash flows expected to be generated from the
continuing use of an asset or CGU.
|
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4.2 Financial risk management (continued)
| RISK | EXPOSURE | MANAGEMENT |
| Credit risk | The Group is exposed to credit risk from its financing activities, including deposits with financial institutions and other financial instruments. With respect to credit risk arising from cash and cash equivalents, trade and other receivables and certain derivative instruments, the Group’s exposure arises from default of the counterparty. Credit risk for the Group also arises from various financial guarantees in which members of the Group act as guarantor. |
The majority of the Group’s sales are on a cash basis, and the Group’s exposure to credit risk from customer sales is minimal. The Group’s trade and other receivables relate largely to commercial income due from suppliers and other receivables from creditworthy third parties. Counterparty limits, credit ratings and exposures are actively managed in accordance with the Policy. The Group’s exposure to bad debts is not significant, and default rates have historically been very low. The credit quality of trade and other receivables neither past due nor impaired has been assessed as high on the basis of credit ratings (where available) or historical information about counterparty default. Since the Group trades only with recognised creditworthy third parties, there is no requirement for collateral by either party. The carrying amount of trade and other receivables and other financial assets in the Balance Sheet represents the Group’s maximum exposure to credit risk. There is also exposure to credit risk where members of the Group have entered into guarantees, however the probability of being required to make payments under these guarantees is considered remote. Refer to Note 6.2 Contingent liabilities for further details. |
Foreign exchange risk
The Group is primarily exposed to foreign exchange risk in relation to the United States dollar (USD), the Euro (EUR) and the British
Pound (GBP). The Group considers its exposure to USD, EUR and GBP arising from purchases to be a long-term and ongoing exposure
that is highly probable.
The table below sets out the total forward exchange contracts at the reporting date and the carrying value of the derivative asset /
(liability) positions:
| NOTIONAL VALUE | CARRYING VALUE | WEIGHTED AVERAGE HEDGE RATE |
||||
| BUY / SELL | 2022 $m |
2021 $m |
2022 $m |
2021 $m |
2022 $m |
2021 $m |
| USD / AUD | 82 | 56 | 3 | 1 | 0.72 | 0.77 |
| EUR / AUD | 208 | 291 | (10) | (26) | 0.61 | 0.58 |
| GBP / AUD | 37 | 36 | (1) | 1 | 0.54 | 0.55 |
| AUD / USD | (3) | (3) | – | – | 0.71 | 0.76 |
4.2 Financial risk management
|
The Group’s financial risk management is carried out by the Group Treasury function and governed by the Board-approved Treasury
Policy (the ‘Policy’). The Policy strictly prohibits speculative positions to be taken.
Management of financial risks is undertaken by the Group in line with its risk management principles and includes the following key
steps: risk identification, risk measurement, setting risk tolerances and hedging objectives, strategy design and strategy implementation.
The Policy requires periodic reporting of financial risks to the Board, and its application is subject to oversight from the Chief Financial
Officer and the Chair of the Audit and Risk Committee.
The Policy allows the use of various derivatives to hedge financial risks and provides guidance in relation to volume and tenor of these
instruments.
In the normal course of business, the Group is exposed to various risks as set out below:
| RISK | EXPOSURE | MANAGEMENT |
| Market risks | ||
| Interest rate risk | The Group’s exposure to interest rate risk relates primarily to interest bearing liabilities where interest is charged at variable rates. |
The Group manages interest rate risk by having access to both fixed and variable debt facilities. In line with the Policy, this risk is further managed by hedging a portion of the variable rate debt exposures with derivative financial instruments to convert floating rate debt obligations to fixed rate obligations. |
| Foreign exchange risk | The Group has exposure to foreign exchange risk principally arising from purchases of inventory and capital equipment denominated in foreign currencies. |
To manage foreign currency transaction risk, the Group hedges material foreign currency denominated expenditure at the time of the commitment and hedges a proportion of foreign currency denominated forecast exposures (mainly relating to the purchase of inventory) through the use of forward foreign exchange contracts. |
| Commodity price risk | The Group is exposed to changes in commodity prices in respect to the price of electricity. |
To mitigate the variability of wholesale electricity prices, the Group utilises Power Purchase Arrangements (PPAs) and electricity swaps. |
| Liquidity risk | The Group is exposed to liquidity and funding risk from operations and external borrowings. Liquidity risk is the risk that unforeseen events cause pressure on, or curtail, the Group’s cash flows. Funding risk is the risk that sufficient funds will not be available to meet the Group’s financial commitments in a timely manner. |
Liquidity risk is measured under both normal market operating conditions and under a crisis situation which curtails cash flows for an extended period. This approach is designed to ensure that the Group’s funding framework is sufficiently flexible to ensure liquidity under a wide range of market conditions. The Group regularly reviews its short, medium and long-term funding requirements. The Policy requires that sufficient committed funds are available to meet medium term requirements, with flexibility and headroom in the event a strategic opportunity should arise. The Group maintains a liquidity reserve in the form of undrawn facilities of at least $1 billion. |
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4.2 Financial risk management (continued)
Interest rate sensitivity
A 100 basis point increase represents management’s assessment of the reasonably possible change in interest rates. Based on the
variable interest rate exposures in existence at the reporting date, if interest rates increased by 100 basis points, with all other variables
held constant, the impact would be:
| POST-TAX PROFIT INCREASE/(DECREASE): |
POST-TAX OCI INCREASE/(DECREASE): |
|||
| 2022 $m |
2021 $m |
2022 $m |
2021 $m |
|
| Impacts of reasonably possible movements: | ||||
| +1.0% (100 basis points) | – | 1 | 3 | 4 |
Liquidity risk
The Group aims to maintain a balance between continuity of funding and flexibility through the use of bank overdrafs and bank debt
with a variety of counterparties.
The committed facilities of the Group are set out below:
| 2022 $m |
2021 $m |
|
| Financing facilities available: | ||
| Bank overdrafs | 13 | 13 |
| Revolving multi-option facilities | 2,715 | 2,715 |
| Term loan facilities | – | 100 |
| 2,728 | 2,828 | |
| Financing facilities utilised: | ||
| Revolving multi-option facilities | 50 | – |
| Guarantees issued1 | 333 | 322 |
| Term loan facilities | – | 100 |
| 383 | 422 | |
| Financing not utilised: | ||
| Bank overdrafs | 13 | 13 |
| Revolving multi-option facilities1 | 2,332 | 2,393 |
| 2,345 | 2,406 |
1 As at 26 June 2022, bank guarantees totalling $333 million (2021: $322 million) have been issued on behalf of the Group through the revolving multi-option
facilities. While the Company has entered into these guarantees, the probability of having to make payments under these guarantees is considered remote.
The Group holds $589 million cash and cash equivalents at the reporting date (2021: $787 million).
Assets pledged as security
A controlled entity has issued a floating charge over assets, capped at $80 million (2021: $80 million), as security for payment obligations
for fuel sales collected on behalf of Viva in accordance with the New Alliance Agreement. The assets are, therefore, excluded from
financial covenants in all debt documentation.
Maturity analysis
The table below sets out the Group’s financial liabilities across the relevant maturity periods based on their contractual maturity date.
At the reporting date, the remaining undiscounted contractual maturities of the Group’s financial liabilities and their carrying amounts
are as follows:
4.2 Financial risk management (continued)
At the reporting date, the Group has the following exposures to USD, EUR and GBP:
| USD $m | EUR €m | GBP £m | ||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |
| Financial assets | ||||||
| Cash and cash equivalents | 3 | 4 | – | – | – | – |
| Trade receivables | 13 | 6 | – | – | – | – |
| Forward exchange contracts | 59 | 44 | 1271 | 168 | 20 | 20 |
| Financial liabilities | ||||||
| Trade and other payables | (65) | (31) | (33) | (13) | (6) | (4) |
| Forward exchange contracts | (2) | (3) | – | – | – | – |
| Net exposure | 8 | 20 | 94 | 155 | 14 | 16 |
1 EUR forward exchange contracts of $86 million (2021: $137 million) relate to capital commitments. The remaining contracts hedge current and future trade
payables denominated in EUR.
Foreign exchange rate sensitivity
At the reporting date, had the Australian dollar moved against the USD, EUR and GBP (with all other variables held constant), the Group’s
post-tax profit and OCI would have been affected by the change in value of its financial assets and financial liabilities.
The following sensitivities are based on the foreign exchange risk exposures in existence at the reporting date and the determination of
reasonably possible movements based on management’s assessment of reasonable fluctuations:
| POST-TAX PROFIT INCREASE/(DECREASE): |
POST-TAX OCI INCREASE/(DECREASE): |
||||
| RATE | CHANGE | 2022 $m |
2021 $m |
2022 $m |
2021 $m |
| AUD / USD | +10% | 2 | – | (2) | (2) |
| -10% | (2) | – | 3 | 2 | |
| AUD / EUR | +10% | 1 | – | (10) | (15) |
| -10% | (1) | – | 13 | 18 | |
| AUD / GBP | +10% | – | – | (2) | (2) |
| -10% | – | – | 2 | 2 |
Interest rate risk
At the reporting date, the Group has the following financial assets and liabilities exposed to variable interest rate risk that, with the
exception of interest rate swaps, are not designated as cash flow hedges:
| 2022 | 2021 | |||
| EXPOSURE $m |
WEIGHTED AVERAGE INTEREST RATE % |
EXPOSURE $m |
WEIGHTED AVERAGE INTEREST RATE % |
|
| Financial assets | ||||
| Cash at bank and on deposit | 30 | 0.5 | 211 | 0.3 |
| Financial liabilities | ||||
| Bank debt | (50) | (2.1) | (100) | (1.4) |
| Capital market debt | (150) | (2.1) | (150) | (1.0) |
| Less: interest rate swaps (notional principal amount) | 150 | 1.3 | 150 | 1.8 |
| Net exposure to cash flow interest rate risk | (20) | 111 |
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4.3 Financial instruments
Financial assets and liabilities measured at fair value
The following table sets out the fair value measurement hierarchy of the Group’s derivative financial instruments:
| 2022 | 2021 | ||||
| FAIR VALUE HIERARCHY |
ASSET $m |
LIABILITY $m |
ASSET $m |
LIABILITY $m |
|
| Cash flow hedges | |||||
| Forward exchange contracts | Level 2 | 4 | (11) | 2 | (26) |
| Interest rates swaps | Level 2 | 7 | – | – | (7) |
| Electricity swaps | Level 2 | 15 | (13) | – | – |
| Power Purchase Arrangement | Level 3 | 48 | (38) | – | (9) |
| Total | 74 | (62) | 2 | (42) |
The Group measures certain financial instruments, such as derivatives, at fair value at each reporting date. Fair value is the price that
would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the
measurement date.
The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or
liability, assuming that market participants act in their economic interest. The Group uses valuation techniques that are appropriate in
the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value
hierarchy based on the lowest level input that is significant to the fair value measurement as a whole.
| LEVEL 1 | Fair value is calculated using quoted prices in active markets for identical assets or liabilities |
| LEVEL 2 | Fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) |
| LEVEL 3 | Fair value is estimated using inputs for the asset or liability that are not based on observable market data (unobservable inputs) |
For financial instruments that are carried at fair value on a recurring basis, the Group determines whether transfers have occurred
between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.
Derivatives
The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment
grade credit ratings. Foreign exchange forward contracts, interest rate swap contracts, electricity swap contracts and power purchase
agreements are valued using forward pricing techniques. This includes the use of market observable inputs, such as foreign exchange
spot and forward rates, yield curves of the respective currencies, interest rate curves and electricity futures. In addition, the valuation
of the power purchase arrangement includes an unobservable input relating to forward electricity price assumptions.
Carrying amounts versus fair values
The carrying amount and fair value of financial assets and liabilities recognised in the financial statements are materially the same
unless stated below:
| CARRYING AMOUNT | FAIR VALUE | |||
| 2022 $m |
2021 $m |
2022 $m |
2021 $m |
|
| Financial liabilities | ||||
| Capital market debt | 1,045 | 1,044 | 892 | 1,054 |
4.2 Financial risk management (continued)
| < 12 MONTHS $m |
1-2 YEARS $m |
2-5 YEARS $m |
> 5 YEARS $m |
TOTAL CONTRACTUAL CASH FLOWS $m |
CARRYING AMOUNT $m |
|
| 2022 | ||||||
| Trade and other payables (less accrued interest) |
4,330 | – | – | – | 4,330 | 4,330 |
| Bank debt (principal and interest) | 12 | 11 | 59 | – | 82 | 52 |
| Capital market debt (principal and interest) |
24 | 24 | 512 | 642 | 1,202 | 1,049 |
| Lease liabilities | 1,288 | 1,285 | 3,653 | 5,599 | 11,825 | 8,681 |
| Interest rate swaps | 2 | 2 | 1 | – | 5 | (7) |
| Forward exchange contracts | 7 | 1 | – | – | 8 | 8 |
| Electricity swaps | 13 | – | – | – | 13 | 13 |
| Power Purchase Arrangement | 18 | 12 | 8 | – | 38 | 38 |
| Total | 5,694 | 1,335 | 4,233 | 6,241 | 17,503 | 14,164 |
| 2021 | ||||||
| Trade and other payables (less accrued interest) |
3,652 | – | – | – | 3,652 | 3,652 |
| Bank debt (principal and interest) | 14 | 10 | 106 | – | 130 | 100 |
| Capital market debt (principal and interest) |
22 | 22 | 216 | 960 | 1,220 | 1,048 |
| Lease liabilities | 1,244 | 1,210 | 3,334 | 4,987 | 10,775 | 8,756 |
| Interest rate swaps | 3 | 3 | 4 | – | 10 | 7 |
| Forward exchange contracts | 11 | 13 | – | – | 24 | 24 |
| Power Purchase Arrangement | (1) | (1) | 1 | 3 | 2 | 9 |
| Total | 4,945 | 1,257 | 3,661 | 5,950 | 15,813 | 13,596 |
For variable rate instruments, the amount disclosed is determined by reference to the interest rate at the last re-pricing date. Contractual
cash flows are undiscounted and as such will not necessarily agree with their carrying amounts.
Changes in liabilities arising from financing activities
| NOTE | AT BEGINNING OF PERIOD $m |
CASH FLOWS $m |
CHANGES IN FAIR VALUE $m |
LEASES RECOGNISED $m |
OTHER $m |
AT END OF PERIOD $m |
|
| 2022 | |||||||
| Bank debt | 3.1 | 98 | (50) | – | – | 2 | 50 |
| Capital market debt | 3.1 | 1,044 | – | – | – | 1 | 1,045 |
| Lease liabilities | 2.7 | 8,756 | (1,264) | – | 826 | 363 | 8,681 |
| Derivatives | 4.3 | 42 | (22) | 42 | – | – | 62 |
| Total liabilities from financing activities |
9,940 | (1,336) | 42 | 826 | 366 | 9,838 | |
| 2021 | |||||||
| Bank debt | 3.1 | 758 | (660) | – | – | – | 98 |
| Capital market debt | 3.1 | 596 | 448 | – | – | – | 1,044 |
| Lease liabilities | 2.7 | 9,083 | (1,281) | – | 564 | 390 | 8,756 |
| Derivatives | 4.3 | 32 | – | 10 | – | – | 42 |
| Total liabilities from financing activities |
10,469 | (1,493) | 10 | 564 | 390 | 9,940 |
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5. Group structure
|
5.1 Equity accounted investments
| OWNERSHIP INTEREST | |||||
| NAME OF COMPANY | PRINCIPAL ACTIVITY | PLACE OF INCORPORATION |
TYPE | 2022 | 2021 |
| Loyalty Pacific Pty Ltd | Operator of the Flybuys loyalty program |
Australia | Joint Venture | 50% | 50% |
| Queensland Venue Co. Pty Ltd (QVC) |
Operator of Spirit Hotels and Queensland retail liquor business |
Australia | Associate | 50% | 50% |
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets
of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions
about the relevant activities require the unanimous consent of the parties sharing control. An associate is an entity that is not controlled
or jointly controlled by the Group, but over which the Group has significant influence.
The Group accounts for its investments in joint ventures and associates using the equity method of accounting. Under the equity
method, the investment in a joint venture or associate is initially recognised at cost. Thereafer, the carrying amount of the investment
is adjusted to recognise the Group’s share of profit afer tax of the joint venture or associate, which is recognised in profit or loss. The
Group’s share of OCI is recognised within Other Comprehensive Income. Dividends received from a joint venture or associate reduce the
carrying amount of the investment.
Afer application of the equity method, the Group determines whether it is necessary to recognise an impairment loss for its investment
in a joint venture or associate. At each reporting date, the Group determines whether there is objective evidence that the investment in
the joint venture or associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference
between the recoverable amount of the joint venture or associate and its carrying value. Any impairment loss will be recognised within
‘share of net profit of equity accounted investments’ in the Income Statement.
|
Loyalty Pacific Pty Ltd
A reconciliation of the carrying amount of the Group’s investment in Loyalty Pacific Pty Ltd is set out below:
| 2022 $m |
2021 $m |
|
| At beginning of period | 19 | 16 |
| Additions | 6 | 8 |
| Loss for the period | (7) | (5) |
| At end of period | 18 | 19 |
4.3 Financial instruments (continued)
Offsetting of financial assets and liabilities
The Group presents its financial assets and liabilities on a gross basis except where there is an enforceable legal right to offset and there
is an intention to settle on a net basis.
Commercial income due from suppliers is recognised within trade receivables, except in cases where the Group has a legally enforceable
right of set-off and the intention to settle on a net basis, in which case only the net amount receivable or payable is recognised.
The following table sets out the Group’s financial assets and financial liabilities which have been offset in the Balance Sheet at the
reporting date:
| GROSS FINANCIAL ASSETS / (LIABILITIES) $m |
GROSS FINANCIAL (LIABILITIES) / ASSETS SET-OFF $m |
NET FINANCIAL ASSETS / (LIABILITIES) PRESENTED IN THE BALANCE SHEET $m |
|
| 2022 | |||
| Trade and other receivables | 605 | (135) | 470 |
| Trade and other payables | (4,470) | 135 | (4,335) |
| 2021 | |||
| Trade and other receivables | 490 | (122) | 368 |
| Trade and other payables | (3,782) | 122 | (3,660) |
Hedge accounting
Where the Group undertakes a hedge transaction it documents at the inception of the transaction the type of hedge, the relationship
between hedging instruments and hedged items and its risk management objective and strategy for undertaking the hedge. The
documentation also demonstrates, both at hedge inception and on an ongoing basis, that the hedge has been, and is expected to
continue to be, highly effective.
The Group uses derivative financial instruments for cash flow hedging purposes and designates them as such.
| Cash flow hedge | Derivatives or other financial instruments that hedge the exposure to variability in cash flows attributable to a particular risk associated with an asset, liability or forecast transaction. The Group uses cash flows hedges to mitigate the risk of variability of: • future cash flows attributable to foreign currency fluctuations over the hedging period where the Group has highly probable purchase or settlement commitments denominated in foreign currencies; • interest rate fluctuations over the hedging period where the Group has variable rate debt obligations; and • energy commodity price fluctuations over the hedging period. |
| Recognition date | The date the hedging instrument is entered into. |
| Measurement | Fair value. |
| Changes in fair value | Changes in the fair value of derivatives designated as cash flow hedges are recognised directly in OCI and accumulated in equity in the hedging reserve to the extent that the hedge is highly effective. To the extent that the hedge is ineffective, changes in fair value are recognised immediately in the Income Statement. |
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5.3 Subsidiaries
The ultimate parent of the Group is Coles Group Limited, a company incorporated in Australia. Subsidiaries are consolidated from the
date of acquisition, being the date Coles Group Limited obtains control, and continue to be consolidated until the date control ceases.
Control exists where the Group has the power to govern the financial and operating policies of the entity in order to obtain benefits from
its activities.
Set out below are the subsidiaries of the Group. All entities were incorporated in Australia and wholly-owned unless stated otherwise.
| Andearp Pty Ltd | Coles Group Supply Chain Pty Ltd * |
| Australian Liquor Group Ltd * | Coles Group Treasury Pty Ltd (formerly Coles Group Payments Pty Ltd) * |
| BetaElementCo Pty Ltd (formally CSA Retail (Finance) Pty Ltd) | Coles Online Pty Ltd * |
| Bi-Lo Pty. Limited * | Coles Property Management Pty Ltd |
| Charlie Carter (Norwest) Pty Ltd | Coles Supermarkets Australia Pty Ltd * |
| Chef Fresh Pty Ltd * | Coles Trading (Shanghai) Co. Limited (incorporated in China) |
| CMPQ (CML) Pty Ltd | Coles WFS Pty Ltd (formerly Wesfarmers Finance Pty Ltd) |
| CNSCE Pty Ltd | Eureka Operations Pty Ltd * |
| Coles Ansett Travel Pty Ltd (97.5%) | GBPL Pty Ltd |
| Coles Captive Insurance Pte. Ltd. (incorporated in Singapore) | Grocery Holdings Pty Ltd * |
| Coles Export Asia Limited (incorporated in Hong Kong) | Katies Fashions (Aust) Pty Limited |
| Coles Export Australia Pty Ltd (formerly Tooronga Holdings Pty Ltd) * |
Liquorland (Australia) Pty. Ltd * |
| Coles Financial Services Pty Ltd | Newmart Pty Ltd |
| Coles FS Holding Company Pty Ltd (formerly Wesfarmers Finance Holding Company Pty Ltd) |
Procurement Online Pty Ltd |
| Coles Group Deposit Services Pty Ltd | Retail Ready Operations Australia Pty. Ltd * |
| Coles Group Finance Limited * | Richmond Plaza Shopping Centre Pty Ltd |
| Coles Group Properties Holdings Ltd * | Tickoth Pty Ltd |
| Coles Group Property Developments Ltd * | WFPL Funding Co Pty Ltd |
| Coles Group Superannuation Fund Pty Ltd | WFPL SPV Pty Ltd |
| Entities formed/incorporated or acquired during the financial year | |
| CNSCV Pty Ltd | |
| Entities deregistered during the financial year | |
| Coles Retail Services Pty Ltd ** | WFPL No 2 Pty Ltd ** |
| e.colesgroup Pty Ltd *** | WFPL Security SPV Pty Ltd ** |
* These entities are parties to the Deed of Cross Guarantee as at 26 June 2022. Chef Fresh became party to the Deed on 23 June 2022.
** Deregistered on 4 July 2021
*** Deregistered on 7 July 2021
5.1 Equity accounted investments (continued)
Queensland Venue Co. Pty Ltd
In FY19, the Company entered into an incorporated joint venture with Australian Venue Co. (AVC) for the operation of Spirit Hotels (the
‘Hotel business’) and the retail liquor stores linked to Spirit Hotels venues (collectively the ‘Retail Liquor business’). An incorporated
joint venture company, QVC was established. Under the joint venture documents, the Company holds all R-shares in QVC and operates
the Retail Liquor business through its wholly-owned subsidiary, Liquorland (Australia) Pty. Ltd. (LLA).
For accounting purposes, LLA is considered the principal in relation to retail liquor sales due to its exposure to the economic risks and
benefits associated with the Retail Liquor business. Accordingly, LLA recognises revenue from retail liquor sales by QVC directly in its
Income Statement. Revenue recognised by QVC relates solely to Spirit Hotels.
Furthermore, due to the application of service fees and cost recoveries between the Company and QVC, net profit relating to the Retail
Liquor business as recognised by QVC is nominal.
A reconciliation of the carrying amount of the Group’s investment in QVC is set out below:
| 2022 $m |
2021 $m |
|
| At beginning of period | 201 | 201 |
| Additions | – | – |
| Profit for the period | – | – |
| At end of period | 201 | 201 |
5.2 Assets held for sale
At 26 June 2022, four of the Group’s properties with a total carrying value of $82 million have been classified as held for sale (2021: six of
the Group’s properties with a total carrying value of $85 million).
The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally
through a sale transaction rather than through continuing use. They are measured at the lower of their carrying amount and fair value
less costs to sell.
The criteria for held for sale classification is met only when the sale is highly probable, and the asset or disposal group is available for
immediate sale in its present condition. A sale is considered highly probable when actions required to complete the sale indicate that it
is unlikely significant changes to the sale will be made or that the decision to sell will be withdrawn, and where management is
committed to a plan to sell the asset and the sale is expected to be completed within one year from the date of the classification.
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5.3 Subsidiaries (continued)
Deed of cross guarantee
Balance Sheet
| CLOSED GROUP | ||
| 2022 $m | 2021 $m | |
| Assets | ||
| Current assets | ||
| Cash and cash equivalents | 580 | 778 |
| Trade and other receivables | 459 | 357 |
| Inventories | 2,448 | 2,102 |
| Income tax receivable | 42 | – |
| Assets held for sale | 82 | 85 |
| Other assets | 121 | 87 |
| Total current assets | 3,732 | 3,409 |
| Non-current assets | ||
| Property, plant and equipment | 4,799 | 4,423 |
| Right-of-use assets | 7,194 | 7,283 |
| Intangible assets | 1,864 | 1,695 |
| Deferred tax assets | 820 | 869 |
| Investment in subsidiaries | 190 | 249 |
| Investment in joint venture | 219 | 220 |
| Other assets | 174 | 147 |
| Total non-current assets | 15,260 | 14,886 |
| Total assets | 18,992 | 18,295 |
| Liabilities | ||
| Current liabilities | ||
| Trade and other payables | 4,425 | 3,756 |
| Income tax payable | – | 62 |
| Provisions | 851 | 947 |
| Lease liabilities | 913 | 897 |
| Other | 312 | 252 |
| Total current liabilities | 6,501 | 5,914 |
| Non-current liabilities | ||
| Interest-bearing liabilities | 1,095 | 1,142 |
| Provisions | 424 | 457 |
| Lease liabilities | 7,762 | 7,854 |
| Other | 11 | 29 |
| Total non-current liabilities | 9,292 | 9,482 |
| Total liabilities | 15,793 | 15,396 |
| Net assets | 3,199 | 2,899 |
| Equity | ||
| Contributed equity | 1,636 | 1,585 |
| Reserves | 95 | 69 |
| Retained earnings | 1,468 | 1,245 |
| Total equity | 3,199 | 2,899 |
5.3 Subsidiaries (continued)
Deed of cross guarantee
Pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (‘ASIC Instrument’) the wholly-owned subsidiaries
listed on the previous page (*) are relieved from the Corporations Act 2001(Cth) requirements for preparation, audit and lodgement of
financial reports, and Directors’ Reports. Together with Coles Group Limited, the entities represent a ‘Closed Group’ for the purposes of
the ASIC Instrument.
As a condition of the ASIC Instrument, the Company and the subsidiaries listed on the previous page (*) have entered into a Deed of
Cross Guarantee (the Deed). The effect of the Deed is that the Company guarantees to pay any deficiency in the event of winding up any
controlled entity in the Closed Group, or if they do not meet their obligations under the terms of any overdrafs, loans, leases or other
liabilities subject to the guarantee. The controlled entities in the Closed Group have also given a similar guarantee in the event that the
Company is wound up or if it does not meet its obligations under the terms of any overdrafs, loans, leases or other liabilities subject to
the guarantee.
An Income Statement and retained earnings and a Balance Sheet, comprising the Company and controlled entities which are a party to
the Deed, afer eliminating all transactions between the parties to the Deed, for the period are set out below:
Income Statement and retained earnings
| CLOSED GROUP | ||
| 2022 $m |
2021 $m |
|
| Sales revenue | 39,369 | 38,585 |
| Other operating revenue | 377 | 370 |
| Total operating revenue | 39,746 | 38,955 |
| Cost of sales | (29,210) | (28,764) |
| Gross profit | 10,536 | 10,191 |
| Other income | 96 | 87 |
| Administration expenses | (8,755) | (8,391) |
| Share of net loss from equity accounted investments | (7) | (5) |
| Earnings before interest and tax | 1,870 | 1,882 |
| Financing costs | (396) | (427) |
| Profit before income tax | 1,474 | 1,455 |
| Income tax expense | (425) | (443) |
| Profit for the period | 1,049 | 1,012 |
| Items that may be reclassified to profit or loss: | ||
| Net movement in the fair value of cash flow hedges | 31 | (9) |
| Income tax effect | (9) | 3 |
| Other comprehensive income/ (loss) which may be reclassified to profit or loss in subsequent periods |
22 | (6) |
| Total comprehensive income for the period | 1,071 | 1,006 |
| Retained earnings | ||
| Retained earnings at beginning of period | 1,245 | 1,040 |
| Chef Fresh retained earnings in opening balance now in Closed Group | (12) | – |
| Profit for the period | 1,049 | 1,012 |
| Dividends paid | (814) | (807) |
| Retained earnings at end of period | 1,468 | 1,245 |
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6. Unrecognised items
|
6.1 Commitments
A commitment represents a contractual obligation to make a payment in the future. The Group’s commitments relate to capital
expenditure and certain operating leases not recognised. Commitments are not recognised in the Balance Sheet but are disclosed.
Capital expenditure commitments of the Group at the reporting date are set out below:
| 2022 $m |
2021 $m |
|
| Within one year | 233 | 244 |
| Between one and five years | 121 | 177 |
| Total capital commitments for expenditure | 354 | 421 |
The commitment amounts disclosed above represent the maximum amounts that the Group is obliged to pay.
At 26 June 2022, the Group also has commitments relating to lease agreements that have not yet commenced. The commitments relate
to lease agreements associated with new stores, the Supply Chain Modernisation program and online fulfilment centres. The future
lease payments (undiscounted) for non-cancellable periods are set out below:
| 2022 $m |
2021 $m |
|
| Within one year | 41 | 8 |
| Between one and five years | 491 | 428 |
| More than five years | 1,613 | 1,748 |
| Total commitments for lease agreements not yet commenced (undiscounted) | 2,145 | 2,184 |
5.4 Parent entity information
Summary financial information for the Company is set out below:
| 2022 $m |
2021 $m |
|
| Profit for the period | 327 | 284 |
| Dividends received | – | – |
| Profit for the period (afer dividends) | 327 | 284 |
| Other comprehensive income | – | – |
| Total comprehensive income for the period | 327 | 284 |
| 2022 $m |
2021 $m |
|
| Assets | ||
| Current assets | 3,045 | 3,390 |
| Non-current assets | 5,088 | 5,102 |
| Total assets | 8,133 | 8,492 |
| Liabilities | ||
| Current liabilities | 1,080 | 1,020 |
| Non-current liabilities | 2,778 | 2,775 |
| Total liabilities | 3,858 | 3,795 |
| Equity | ||
| Contributed equity | 1,630 | 1,585 |
| Reserves | 100 | 80 |
| Retained earnings | 2,545 | 3,032 |
| Total equity | 4,275 | 4,697 |
As at 26 June 2022, the Company has no guarantees in relation to the debts of its subsidiaries (2021: $nil).
As at 26 June 2022, the Company has no contingent liabilities (2021: $nil). As at 26 June 2022, the Company has bank guarantees totalling
$328 million (2021: $290 million).
As at 26 June 2022, the Company has contractual commitments for the acquisition of property, plant and equipment totalling $235
million (2021: $349 million).
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7. Other disclosures
|
7.1 Related party disclosures
| 2022 $m |
2021 $m |
|
| Joint ventures and associates | ||
| Loyalty Pacific Pty Ltd | ||
| Sale of goods to members of Flybuys | 199 | 140 |
| Payments for loyalty program to Loyalty Pacific Pty Ltd | 359 | 299 |
| Amounts owing to Loyalty Pacific Pty Ltd | 251 | 212 |
| Queensland Venue Co. Pty Ltd | ||
| Service fees paid to QVC | 56 | 55 |
| Amounts receivable from QVC | 21 | 25 |
Transactions with Key Management Personnel (KMP)
Compensation of KMP of the Group:
| 2022 $ |
2021 $ |
|
| Short-term employee benefits | 10,903,690 | 9,979,957 |
| Post-employment benefits | 193,111 | 182,888 |
| Other long-term benefits | 118,652 | 325,493 |
| Share-based payments | 8,855,257 | 7,070,757 |
| Total compensation paid to key management personnel | 20,070,710 | 17,559,095 |
Other transactions with KMP
Mr Freudenstein, a Non-executive Director, sold livestock to Coles via a livestock agent for an aggregate amount of $81,335.
Terms and conditions of transactions with related parties
Sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding
balances at the reporting date are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided
or received for any related party receivables or payables.
The Group has not recognised a provision for expected credit losses relating to amounts owed by related parties (2021: $nil).
7.2 Employee share plans
The Group operates an Equity Incentive Plan (the ‘Plan’) which provide equity instruments to employees as a component of their
remuneration.
Long Term Incentive (LTI) Program
Refer to the Remuneration Report for the terms and conditions of the LTI program.
The fair value of Performance Rights under each performance measure is determined at grant date by an independent valuation expert
and takes into account the terms and conditions upon which they were granted. The fair value is recognised as an employee expense
(with a corresponding increase in equity) over the vesting period.
For the relative total shareholder return (TSR) measure, the fair value is recognised as an expense irrespective of whether the
Performance Rights vest to the holder, and a reversal of the expense is only recognised in the event the instruments lapse due to
cessation of employment within the vesting period. For the return on capital (ROC) measure, the amount expensed is based on the
expected number of Performance Rights vesting, with the ultimate expense reflecting the actual Performance Rights that vest.
6.2 Contingencies
In February 2020, Coles announced it was conducting a review into the pay arrangements for all team members who received a salary
and were covered by the General Retail Industry Award 2010 (GRIA). The review assessed the remuneration paid to 15,011 team members
against GRIA. Coles conducted a remediation program, and to date Coles has incurred $13 million of remediation costs with a further
$12 million provisioned at the date of this report.
Following the announcement in February 2020, the Fair Work Ombudsman (FWO) commenced an investigation into Coles’ pay
arrangements for a group of the affected salaried team members covered by the GRIA.
In December 2021, the FWO filed proceedings in the Federal Court of Australia which include issues relating to the interpretation and
application of various provisions of the GRIA. FWO alleges that Coles is obligated to pay a further $108 million in remediation payments
to 7,687 team members for the period 1 January 2017 to 31 March 2020. This group is a subset of the award covered salaried employees
which were assessed as part of the 2020 review by Coles. Additionally, the period of time covered in the proceedings is a lesser period
than the period covered in the Coles’ remediation.
Coles has lodged its defence in this proceeding, and the matter has been listed for trial in mid 2023. The trial will include consideration
of threshold issues, including interpretation of the GRIA provisions. As such, the potential outcome, extent to which further remediation
may be necessary, and costs associated with this matter remain uncertain as at the date of this report.
In May 2020, Coles was notified that a class action proceeding had been filed in the Federal Court of Australia in relation to payment of
Coles managers employed in supermarkets. Coles is defending the proceeding. This matter will be heard in conjunction with the FWO
proceedings at trial in mid June 2023. The potential outcome and total costs associated with this matter remain uncertain as at the date
of this report.
From time to time, entities within the Group are party to various legal actions as well as inquiries from regulators and government
bodies that have arisen in the ordinary course of business. Consideration has been given to such matters and it is expected that the
resolution of these contingencies will not have a material impact on the financial position of the Group, or are not at a stage to support
a reasonable evaluation of the likely outcome.
|
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7.2 Employee share plans (continued)
Additional information on award schemes
Details of grants made under the Plan during the period are set out in the Remuneration Report.
|
7.3 Auditor’s remuneration
| 2022 $000 |
2021 $000 |
|
| Fees to Ernst & Young (Australia): | ||
| Audit services: | ||
| Audit or review of the Financial Report of the Group | 2,825 | 2,738 |
| Assurance related | 822 | 6991 |
| Non-audit services: | ||
| Tax compliance services | 133 | 1641 |
| Total fees to Ernst & Young (Australia) | 3,780 | 3,601 |
| Fees to overseas member firms of Ernst & Young: | ||
| Audit services: | ||
| Audit or review of the Financial Report of any controlled entities | 49 | 57 |
| Total fees to overseas member firms of Ernst & Young | 49 | 57 |
| Total auditor’s remuneration | 3,829 | 3,658 |
1 Certain FY21 services were in progress at the time of disclosure. These amounts have now been updated following completion of these services in FY22.
The auditor of the Group is Ernst & Young (EY). Fees charged by EY for ‘Assurance related services’ are for services that are reasonably
related to the performance of the audit or review of financial reports, for other assurance engagements (such as assurance over the
Group’s Sustainability Report) and for other assurance related engagements which are appropriate for our external auditor to perform.
The total fees for non-audit services was 3.5% (2021: 4.5%) of the total fees paid or payable to EY and related practices for the period.
7.4 New accounting standards and interpretations
There are amendments and interpretations that apply for the first time in this period. These did not have a material impact on the
consolidated financial statements of the Group.
New and revised australian accounting standards and interpretations on issue but not yet effective
There are no standards issued but are not yet effective that would be expected to have a material impact on the Group in the current or
future reporting periods.
7.5 Events afer the reporting period
Other than events disclosed elsewhere in this report, the Group is not aware of any matter or circumstance that has occurred since the
reporting date that has significantly affected or may significantly affect the Group’s operations, the results of those operations or the
Group’s state of affairs in subsequent reporting periods.
7.2 Employee share plans (continued)
Short Term Incentive (STI) Program
For Executives, 25% of their STI is deferred into Restricted Shares (50% for the Managing Director and Chief Executive Officer) and are
subject to a one-year service condition (two years for the Managing Director and Chief Executive Officer). The cost of the deferred STI is
based on the market price at grant date and is recognised as an employee expense (with a corresponding increase in equity) over the
vesting period.
Further explanation of the deferred STI is disclosed in the Remuneration Report.
Restricted share offer
Restricted Shares are subject to a continued service condition, a three-year trading restriction period and cessation of employment
provisions. During the trading restriction period, Restricted Shares are held in trust by the Trustee on behalf of the employee. The
number of Restricted Shares to be granted is determined based on the currency value of the achieved Restricted Share offer divided by
the volume weighted average price (VWAP) at which the Company’s shares are traded on the Australian Stock Exchange over the period
outlined in the offer letter. The value of Restricted Shares granted is recognised as an employee expense (with a corresponding increase
in equity) over the vesting period.
Restricted Shares carry the same dividend and voting rights as other fully paid Ordinary Shares in the Company.
Performance Rights (number)
Movements in Performance Rights granted under the LTI program that existed during the current or prior period are:
| GRANT DATE | BALANCE AT 28 JUNE 2021 |
GRANTED | FORFEITED | VESTED | BALANCE AT 26 JUNE 2022 |
EXERCISABLE AT 26 JUNE 2022 |
| 2022 | ||||||
| Nov 2019 | 962,246 | – | (6,380) | – | 955,866 | – |
| May 2020 | 89,528 | – | – | – | 89,528 | – |
| Nov 2020 | 223,133 | – | – | – | 223,133 | – |
| Nov 2020 | 772,930 | – | (56,651) | – | 716,279 | – |
| Nov 2021 | – | 225,976 | – | – | 225,976 | – |
| Dec 2021 | – | 877,925 | (80,229) | – | 797,696 | – |
| 2,047,837 | 1,103,901 | (143,260) | – | 3,008,478 | – |
| GRANT DATE | BALANCE AT 29 JUNE 2020 |
GRANTED | FORFEITED | VESTED | BALANCE AT 27 JUNE 2021 |
EXERCISABLE AT 27 JUNE 2021 |
| 2021 | ||||||
| Nov 2019 | 962,246 | – | – | – | 962,246 | – |
| May 2020 | 89,528 | – | – | – | 89,528 | – |
| Nov 2020 | – | 223,133 | – | – | 223,133 | – |
| Nov 2020 | – | 772,930 | – | – | 772,930 | – |
| 1,051,774 | 996,063 | – | – | 2,047,837 | – |
Fair value of equity instruments
The assumptions underlying the fair value measurement of the performance rights are:
| GRANT DATE | EXPIRY DATE | SHARE PRICE AT GRANT DATE $ |
EXPECTED VOLATILITY IN SHARE PRICE1 % |
EXPECTED DIVIDEND YIELD % |
RISK FREE INTEREST RATE2 % |
FAIR VALUE PER INSTRUMENT $ |
| Nov 2019 | Aug 2022 | 16.26 | 25.0 | 3.90 | 0.65 | 12.58 |
| May 2020 | Aug 2022 | 15.02 | 25.0 | 4.20 | 0.25 | 12.92 |
| Nov 2020 | Aug 2023 | 18.26 | 25.0 | 3.68 | 0.10 | 13.52 |
| Nov 2020 | Aug 2023 | 17.95 | 25.0 | 3.68 | 0.11 | 12.67 |
| Nov 2021 | Aug 2024 | 17.63 | 20.0 | 3.56 | 0.89 | 12.61 |
| Dec 2021 | Aug 2024 | 17.85 | 20.0 | 3.53 | 0.95 | 13.04 |
1 Reflects the assumption that the historical volatility is indicative of future trends.
2 Represents the zero coupon interest rate derived from government bond market interest rates on the valuation date and vary according to each maturity date.
Overview Operating and Financial Review Directors’ Report Remuneration Report Financial Report Shareholder Information
131
Directors’ Declaration
1. The directors of Coles Group Limited (the Company) declare that, in the directors’ opinion:
(a) the financial statements and the Notes are in accordance with the Corporations Act 2001 (Cth), including:
(i) complying with the accounting standards and Corporations Regulations 2001; and
(ii) giving a true and fair view of the financial position and performance of the Company and its consolidated entities;
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable.
2. A statement of compliance with the International Financial Reporting Standards is included in the Basis of Preparation and
Accounting Policies in the Notes to the consolidated financial statements.
3. The directors have been given the declaration required by section 295A of the Corporations Act 2001 (Cth) from the Managing
Director and Chief Executive Officer and Chief Financial Officer for the financial year ended 26 June 2022.
4. As at the date of this declaration, there are reasonable grounds to believe that the members of the closed group identified in Note
5.3 Subsidiaries to the financial statements will be able to meet any obligations or liabilities to which they are, or may become,
subject by virtue of the Deed of Cross Guarantee described in Note 5.3 Subsidiaries.
Signed in accordance with a resolution of the directors.
James Graham AM Steven Cain
Chairman Managing Director and Chief Executive Officer
24 August 2022 24 August 2022
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Independent Auditor’s Report to the Members of Coles Group Limited
Report on the Audit of the Financial Report
Opinion
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 26 June 2022, the
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
ended, notes to the consolidated financial statements, including a summary of significant accounting
policies, and the Directors’ Declaration.
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations
Act 2001, including:
| (a) (a) |
giving a true and fair view of the consolidated financial position of the Group as at 26 June 2022 and of its consolidated financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. giving a true and fair view of the consolidated financial position of the Group as at 26 June 2022 and of its consolidated financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. |
| (b) (b) |
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the Financial Report of the current year. These matters were addressed in the context of
our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not
provide a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the Financial Report. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying Financial Report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Independent Auditor’s Report to the Members of Coles Group Limited
Report on the Audit of the Financial Report
Opinion
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 26 June 2022, the
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
ended, notes to the consolidated financial statements, including a summary of significant accounting
policies, and the Directors’ Declaration.
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations
Act 2001, including:
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the Financial Report of the current year. These matters were addressed in the context of
our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not
provide a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the Financial Report. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying Financial Report.
Coles Group Limited 2022 Annual Report
130
132 133
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Independent Auditor’s Report to the Members of Coles Group Limited
Report on the Audit of the Financial Report
| Opinion industry as “supplier rebates”) comprises discounts and rebates received by the Group |
income included the following: ► We gained an understanding of the nature of |
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 26 June 2022, the
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
ended, notes to the consolidated financial statements, including a summary of significant accounting
| policies, and the Directors’ Declaration. factors including: |
► We assessed the design and operating |
| In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations ► The commercial terms of each individual effectiveness of relevant controls in place |
|
| Act 2001, including: rebate agreement; ► The nature and substance of the rebate |
relating to the recognition and measurement of amounts related to these arrangements; |
| (a) giving a true and fair view of the consolidated financial position of the Group as at 26 June arrangement to determine whether the ► We performed comparisons of the various |
|
| 2022 and of its consolidated financial performance for the year ended on that date; and amount reflects a reduction in the purchase arrangements against the prior year, including |
|
| (b) | complying with Australian Accounting Standards and the Corporations Regulations 2001. |
| price of inventory, requiring the rebate to be | analysis of ageing profiles and where material |
| applied against the carrying value of inventory, or can be otherwise recognised in |
variances were identified, obtained supporting evidence; |
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
| with the Code. in Note 2.4 Inventories. |
category managers, supply chain managers, legal counsel and procurement management as |
| We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis to the existence of any non-standard |
|
| for our opinion. | agreements or side arrangements; and |
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the Financial Report of the current year. These matters were addressed in the context of
our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not
provide a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the Financial Report. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying Financial Report.
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1. Commercial income
Why significant How our audit addressed the key audit matter
Commercial income (also referred to in the retail
from its suppliers.
Determining the value and timing of when
commercial income is recognised through the
Consolidated Income Statement requires
judgement and the consideration of a number of
the Consolidated Income Statement; and
► The accurate recognition and measurement
of rebates in accordance with Australian
Accounting Standards and the Group’s
related processes and controls to these
arrangements.
Disclosures relating to the measurement and
recognition of commercial income can be found
Our audit procedures in respect of commercial
each significant type of commercial income and
assessed a sample of agreements in place to
determine whether the terms of each
agreement were reflected in the accounting
treatment;
► We selected a sample of supplier agreements
and assessed whether the agreements or other
documentation appropriately supported the
recognition and measurement of the rebates
recorded in the 26 June 2022 Financial Report,
including an assessment of amounts recorded
before and after the balance date;
► We inquired of the Group including business
► We considered the adequacy of the financial
report disclosures.
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Ernst & Young
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Independent Auditor’s Report to the Members of Coles Group Limited
Report on the Audit of the Financial Report
| Opinion The determination of the recoverable amounts of non-current assets including property, plant |
Our audit procedures included an evaluation of the following assumptions utilised in the Group’s |
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 26 June 2022, the
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
ended, notes to the consolidated financial statements, including a summary of significant accounting
policies, and the Directors’ Declaration.
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations
Act 2001, including:
| (a) giving a true and fair view of the consolidated financial position of the Group as at 26 June 2022 and of its consolidated financial performance for the year ended on that date; and expenses. Key assumptions, judgements and estimates whether the Group’s forecasts considered the ongoing impacts of the COVID-19 pandemic on |
|
| (b) complying with Australian Accounting Standards and the Corporations Regulations 2001. are set out in Note 4.1. We assessed whether the Group’s impairment |
|
| the COVID-19 pandemic on income and | In performing our procedures, we considered |
| applied in the Group’s impairment assessment | income and expenses. |
| Based upon the disclosed sensitivity analysis, | models were in accordance with Australian |
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
| with the Code. Why significant |
How our audit addressed the key audit matter |
| We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. A significant part of the Group’s financial processes are heavily reliant on IT systems with We performed procedures to understand the IT environment, including procedures to identify the |
|
| Key Audit Matters automated processes and controls over the capture, valuation and recording of transactions. |
Group’s manual and automated controls relevant to Financial Reporting. |
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the Financial Report of the current year. These matters were addressed in the context of
our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not
provide a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the Financial Report. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying Financial Report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
2. Impairment of non-current assets including intangible assets
Why significant How our audit addressed the key audit matter
and equipment, right of use assets, goodwill and
other intangible assets requires significant
judgement by the Group.
Impairment assessments are complex and
involve significant management judgement. The
assessment completed by the Group includes
numerous assumptions and estimates that will
be impacted by future performance and market
conditions. This includes the ongoing impacts of
changes to the key assumptions applied in the
impairment test are not expected to give rise to
an impairment of the carrying value of the
Group’s cash generating units.
impairment assessment:
► Determination of cash generating units;
► Forecast cash flows, which were based on the
Group’s Board approved five-year forecasts;
► Long term inflation and growth rates;
► Discount rates; and
► Other market evidence.
Accounting Standards, and tested the mathematical
accuracy of the calculations.
We considered the adequacy of the Financial Report
disclosures regarding the impairment testing
approach, key assumptions, results and sensitivity
analysis.
3. IT environment
This was a key audit matter because of the:
► Complex IT environment supporting diverse
business processes, with varying levels of
integration between them;
► Mix of manual and automated controls;
► Multiple internal and outsourced support
arrangements; and
► Continuing enhancements to the Group’s IT
systems, including new IT systems
implemented, which are significant to our
audit.
We tested the effectiveness of the key IT controls
relevant to the financial reporting systems of the
Group. This included assessing the key IT controls
over changes made to the material financial
reporting systems and controls over appropriate
access to these systems and related data.
134 135
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8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Independent Auditor’s Report to the Members of Coles Group Limited
Report on the Audit of the Financial Report
Opinion
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 26 June 2022, the
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
ended, notes to the consolidated financial statements, including a summary of significant accounting
| policies, and the Directors’ Declaration. are managed by third parties. |
processed correctly; ► Observed a sample of cycle counts at |
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations
Act 2001, including:
| (a) | giving a true and fair view of the consolidated financial position of the Group as at 26 June 2022 and of its consolidated financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. ► Performed roll forward procedures for a sample of stocktakes and cycle counts observed during the year, through to 26 June 2022; and |
| (b) |
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the Financial Report of the current year. These matters were addressed in the context of
our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not
provide a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the Financial Report. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying Financial Report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
4. Inventory existence
Why significant How our audit addressed the key audit matter
At 26 June 2022, the Group held inventories of
$2,448 million. Being one of the Group’s most
significant assets, its inventory existence
verification process is extensive and occurs
routinely throughout the financial year.
This inventory is held at geographically diverse
locations around Australia at various retail
stores and distribution centres, some of which
The Group’s accounting policy in respect of
inventories is disclosed in Note 2.4 of the
Financial Report.
Our audit procedures included the following:
► Selected a sample of stores and observed and
assessed the Group’s stocktake processes and
controls throughout the year;
► For the stocktakes we observed, we assessed
whether the required adjustment to inventory
determined by the stocktake was accurate and
distribution centres and assessed whether daily
counts occurred at distribution centres during
the year;
► For a select number of distribution centres and
production facilities managed by third parties,
we obtained confirmation of inventories held by
third parties at year end.
Information Other than the Financial Report and Auditor’s Report Thereon
The directors are responsible for the other information. The other information comprises the
information included in the Company’s 2022 Annual Report, but does not include the Financial Report
and our auditor’s report thereon. We obtained the Operating and Financial Review, Board of Directors
section and Directors’ Report that are to be included in the Annual Report, prior to the date of this
auditor’s report, and we expect to obtain the remaining sections of the Annual report after the date of
this auditor’s report.
Our opinion on the Financial Report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon, with the exception of the Remuneration Report
and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the Financial
Report or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
A member firm of Ernst & Young Global Limited
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Ernst & Young
8 Exhibition Street
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GPO Box 67 Melbourne VIC 3001
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ey.com/au
Independent Auditor’s Report to the Members of Coles Group Limited
Report on the Audit of the Financial Report
Opinion
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 26 June 2022, the
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
ended, notes to the consolidated financial statements, including a summary of significant accounting
policies, and the Directors’ Declaration.
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations
Act 2001, including:
(a) giving a true and fair view of the consolidated financial position of the Group as at 26 June
2022 and of its consolidated financial performance for the year ended on that date; and
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the Financial Report of the current year. These matters were addressed in the context of
our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not
provide a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the Financial Report. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying Financial Report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Responsibilities of the Directors for the Financial Report
The Directors of the Company are responsible for the preparation of the Financial Report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the Directors determine is necessary to enable the preparation of the
Financial Report that gives a true and fair view and is free from material misstatement, whether due
to fraud or error.
In preparing the Financial Report, the Directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters relating to going concern and using the
going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the Financial Report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this Financial Report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the Financial Report, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the Directors.
Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the Financial Report or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause the Group
to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the Financial Report, including the
disclosures, and whether the Financial Report represents the underlying transactions and
events in a manner that achieves fair presentation.
136
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Ernst & Young
8 Exhibition Street
Melbourne VIC 3000 Australia
GPO Box 67 Melbourne VIC 3001
Tel: +61 3 9288 8000
Fax: +61 3 8650 7777
ey.com/au
Independent Auditor’s Report to the Members of Coles Group Limited
Report on the Audit of the Financial Report
Opinion
We have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries
(collectively, the Group), which comprises the Consolidated Balance Sheet as at 26 June 2022, the
Consolidated Income Statement, Consolidated Statement of Other Comprehensive Income,
Consolidated Statement of Changes in Equity and Consolidated Cash Flow Statement for the year then
ended, notes to the consolidated financial statements, including a summary of significant accounting
policies, and the Directors’ Declaration.
In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations
Act 2001, including:
(a) giving a true and fair view of the consolidated financial position of the Group as at 26 June
2022 and of its consolidated financial performance for the year ended on that date; and
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (including Independence Standards) (the Code) that are relevant to our audit of the
Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance
with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the Financial Report of the current year. These matters were addressed in the context of
our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not
provide a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Financial Report section of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the Financial Report. The results of our audit procedures, including the
procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying Financial Report.
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the Group to express an opinion on the Financial Report. We are
responsible for the direction, supervision and performance of the Group audit. We remain solely
responsible for our audit opinion.
We communicate with the Directors regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the Directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, actions
taken to eliminate threats or safeguards applied.
From the matters communicated to the Directors, we determine those matters that were of most
significance in the audit of the Financial Report of the current year and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Report on the Audit of the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in the Directors’ report for the year ended
26 June 2022.
In our opinion, the Remuneration Report of Coles Group Limited for the year ended 26 June 2022,
complies with section 300A of the Corporations Act 2001.
Responsibilities
The Directors of the Company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our
responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in
accordance with Australian Auditing Standards.
Ernst & Young
David Shewring
Partner
Melbourne
24 August 2022
137
Coles Group Limited 2022 Annual Report
Listing information
Coles Group Limited is listed, and our issued shares are quoted on the Australian Securities Exchange (ASX) under the code: COL.
Substantial shareholdings in Coles Group Limited as at 26 August 2022
The number of shares to which each substantial holder and the substantial holders’ associates have a relevant interest, as
disclosed in substantial holding notices given to Coles, are as follows:
| Holder | Number of fully paid shares |
| Vanguard Group | 66,814,399 |
| Blackrock Group | 83,226,846 |
| State Street Corporation | 67,541,898 |
Twenty largest ordinary fully paid shareholders as at 26 August 2022
| Coles Group Limited | Number of fully paid shares |
% of issued capital |
|
| 1 | HSBC Custody Nominees (Australia) Limited | 376,392,484 | 28.17 |
| 2 | J P Morgan Nominees Australia Pty Limited | 183,301,800 | 13.72 |
| 3 | Citicorp Nominees Pty Limited | 111,717,035 | 8.36 |
| 4 | Wesfarmers Retail Holdings Pty Ltd | 37,193,541 | 2.78 |
| 5 | National Nominees Limited | 34,125,021 | 2.55 |
| 6 | BNP Paribas Noms Pty Ltd <DRP> | 33,550,722 | 2.51 |
| 7 | BNP Paribas Nominees Pty Ltd <Agency Lending DRP A/C> | 30,498,304 | 2.28 |
| 8 | Australian Foundation Investment Company Limited | 8,677,500 | 0.65 |
| 9 | HSBC Custody Nominees (Australia) Limited <NT-Comnwlth Super Corp A/C> | 8,396,349 | 0.63 |
| 10 | Argo Investments Limited | 5,290,027 | 0.40 |
| 11 | Citicorp Nominees Pty Limited <Colonial First State Inv A/C> | 4,573,058 | 0.34 |
| 12 | Netwealth Investments Limited <Wrap Services A/C> | 4,018,644 | 0.30 |
| 13 | Washington H Soul Pattinson and Company Limited | 3,177,375 | 0.24 |
| 14 | Mutual Trust Pty Ltd | 2,708,045 | 0.20 |
| 15 | BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd <DRP A/C> | 2,438,907 | 0.18 |
| 16 | Australian Executor Trustees Limited <IPS IOOF Employer Super A/C> | 2,298,532 | 0.17 |
| 17 | Warbont Nominees Pty Ltd <Unpaid Entrepot A/C> | 1,639,422 | 0.12 |
| 18 | Mr Peter Alexander Brown | 1,552,825 | 0.12 |
| 19 | Djerriwarrh Investments Limited | 1,535,505 | 0.11 |
| 20 | The Senior Master of The Supreme Court <Common Fund No 3 A/C> | 1,481,985 | 0.11 |
Distribution of shareholders and shareholdings as at 26 August 2022
| Size of holding | Number of shareholders | Number of shares | % of issued capital |
| 1 – 1,000 | 351,230 | 106,685,034 | 7.98 |
| 1,001 – 5,000 | 81,316 | 173,608,169 | 12.99 |
| 5,001 – 10,000 | 10,091 | 70,409,714 | 5.27 |
| 10,001 – 100,000 | 4,942 | 98,149,053 | 7.34 |
| 100,001 and over | 127 | 887,435,986 | 66.41 |
| Total | 447,706 | 1,336,287,956 |
There were 27,471 shareholders holding less than a marketable parcel ($500).
Shareholder Information
Overview Operating and Financial Review Directors’ Report Remuneration Report Financial Report Shareholder Information
Coles Group Limited 2022 Annual Report
139
Coles Group Limited 2022 Annual Report
138
Voting rights
Votes of shareholders are governed by the Company’s Constitution. In broad summary, but without prejudice to the provisions of these
rules, the Constitution provides for votes to be cast:
(a) on a show of hands, one vote for each shareholder; and
(b) on a poll, one vote for each fully paid share.
Unquoted equity securities
As at 26 August 2022, 3,119,560 performance rights with 14 holders were on issue pursuant to Coles’ equity incentive plan.
On-market share acquisitions
During FY22, 123,793 Coles ordinary shares were purchased on market at an average price of $17.14 per share for the purposes of
various Coles employee incentive schemes.
There is no current on-market buy-back of the Company’s shares.
Corporate Governance Statement
A copy of the Corporate Governance Statement can be found on our website at www.colesgroup.com.au/corporategovernance.
Registered office
800-838 Toorak Road
Hawthorn East
VIC 3123 Australia
Telephone
+61 3 9829 5111
Website
www.colesgroup.com.au
Chairman
Mr James Graham AM
Managing Director and Chief Executive Officer
Mr Steven Cain
Non-executive Directors
Mr James Graham AM
Mr David Cheesewright
Ms Jacqueline Chow
Ms Abi Cleland
Mr Richard Freudenstein
Mr Paul O’Malley
Ms Wendy Stops
Company Secretary
Ms Daniella Pereira
Auditor
Ernst & Young
8 Exhibition Street
Melbourne
VIC 3000 Australia
Coles Share Registry
Computershare Investor Services Pty Limited
Yarra Falls
452 Johnston Street
Abbotsford
VIC 3067 Australia
Postal address
GPO Box 2975
Melbourne
VIC 3001 Australia
Telephone
1300 171 785 (within Australia)
+61 3 9415 4078 (outside Australia)
Online
www.investorcentre.com/contact
Website
www.computershare.com
Shareholder Calendar*
| Event | Date |
| Record date for final dividend | 5 September 2022 |
| Final dividend payment date | 28 September 2022 |
| Coles Group Limited Annual General Meeting | 9 November 2022 |
| Half-year end | 1 January 2023 |
| Year-end | 25 June 2023 |
*Timing of events is subject to change.
Annual General Meeting
The 2022 Annual General Meeting of Coles Group Limited will be
held as a hybrid meeting on Wednesday 9 November 2022,
commencing at 10:30am (AEDT) at Melbourne Convention and
Exhibition Centre, Melbourne Room, 1 Convention Centre Place,
South Wharf, Melbourne, Victoria, Australia. Information on how
shareholders and proxyholders can view and participate in the
meeting can be found on the Company’s website and in the Notice
of Annual General Meeting.
Coles’ Notice of Annual General Meeting has been released on the
ASX Market Announcements Platform.
Corporate Directory
Overview Operating and Financial Review Directors’ Report Remuneration Report Financial Report Shareholder Information
Coles Group Limited
ABN 11 004 089 936
800–838 Toorak Road
Hawthorn East
VIC 3123 Australia