2020 Annual Report - Coles Group

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2020 Annual Report2020 Annual ReportSustainably feed all Australians to helpthem lead healthier, happier livesABN 11 004 089 936Coles Group LimitedABN 11 004 089 936

Coles Group Limited 2020 Annual ReportColes Group Limited 2020 Annual ReportContentsColes acknowledges the Traditional Custodians of Countrythroughout Australia and pays its respects to elders pastand present. We recognise their rich cultures and continuingconnection to land and waters.OverviewAboriginal and Torres Strait Islander peoples are advisedthat this document may contain names and images ofpeople who are deceased.2020 performance42020 highlights5Message from the Chairman6All references to Indigenous people in this documentare intended to include Aboriginal and/or Torres StraitIslander people.11How we create value12Sustainability snapshot14 Support for customers, suppliers and communitiesDRAFT 1   COL1634AnnualReportThese forward-looking statementsarebasedon the Group’sgood-faithd4a    September23,20207:52PMassumptions as to the financial, market, risk, regulatory and otherReaders are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements in this report speak only asat the date of issue. Except as required by applicable laws or regulations, the Group does not undertake any obligation to publicly updateor revise any of the forward-looking statements or to advise of any change in assumptions on which any such statement is based. Pastperformance cannot be relied on as a guide to future performance.Non-IFRS InformationAny non-IFRS financial information included in this report has been labelled to differentiate it from statutory or IFRS financial information. Non-IFRSmeasures are used by management to assess and monitor business performance at the Group and segment level and should be considered inaddition to, and not as a substitute for, IFRS information. Non-IFRS information is not subject to audit or review.65Directors’ Report68Remuneration Report73Financial Report96Independent Auditor’s Report150Shareholder Information158Welcome to theColes Group2020 Annual ReportOur vision is to become the most trusted retailer in Australiaand grow long-term shareholder value.Customers trust Coles, as part of the fabric of Australiansociety for more than 100 years, to provide great valuefood and drinks.We are known for our value, range and customer servicethrough our extensive store network and for providingonline shopping solutions across Australia.Other InformationPhotographs in our Annual Report may have been taken before social distancing restrictions were in place. The image of FightMND campaigndirector Bec Daniher with Coles team members on page 11 of this report was photographed by News Ltd / Newspix.Front cover: In addition to the collection of unsold, edible food from our supermarkets and distribution centres, food and groceries to a retailvalue of 7.9 million were provided to SecondBite and Foodbank this year in response to increasing demand for food relief as a result ofCOVID-19. SecondBite CEO Jim Mullan said, ‘It’s incredible to see how our partnership with Coles has grown over the years and the impact thishas had on the most vulnerable people in our community. Many shoppers wouldn’t be aware of the work that goes on behind the scenes toensure edible unsold food ends up on the plates of those in need, rather than in landfill. We are proud to work with an organisation that is aclear leader with respect to both its social and environmental responsibilities.’1Shareholder informationThis report contains IFRS and non-IFRS financial information. IFRS financial information is financial information that is presented in accordancewith all relevant accounting standards. Retail or non-IFRS financial information is financial information that is not defined or specified under anyrelevant accounting standards and may not be directly comparable with other companies’ information.Board of DirectorsFinancial Reportrelevant environments that will exist and affect the Group’s business and operations in the future. The Group does not give any assurance thatthe assumptions will prove to be correct. The forward-looking statements involve known and unknown risks, uncertainties and assumptions andother important factors, many of which are beyond the reasonable control of the Group, that could cause the actual results, performancesor achievements of the Group to be materially different from future results, performances or achievements expressed or implied by thestatements.30Remuneration ReportThis report contains forward-looking statements in relation to Coles Group Limited (‘the Company’) and its controlled entities (together ‘Coles’or ‘the Group’), including statements regarding the Group’s intent, belief, goals, objectives, initiatives, commitments or current expectationswith respect to the Group’s business and operations, market conditions, results of operations and financial conditions, and risk managementpractices. 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.24Operating and Financial ReviewDirectors’ ReportForward-looking statements19Operating and Financial ReviewGovernance at ColesDRAFT 21  COL1634 AnnualReport d31a – Rnd 16Copy   September23,20207:52PM8Our vision, purpose and strategyOverview Managing Director andChief Executive Officer’s report

DRAFT 21  COL1634 AnnualReport d31a – Rnd 16Copy   September23,20207:52PMDRAFT 1   COL1634AnnualReportd4a    September23,20207:52PMOur purpose is tosustainably feed allAustralians to helpthem lead healthier,happier lives.The Pergoliti family at Harvey Citrus in Western Australia received a grant from the Coles Nurture Fund in FY20 to extend its supply of WA-growncitrus over the summer and increase local employment by expanding its cool room facility and installing solar panels on its packing shed.Pictured is Andrew Pergoliti with his father Steve and daughter Alyssa.

Coles Group Limited 2020 Annual Report2020performance2020highlightsOverviewColes Group Limited 2020 Annual ReportSales growth1Customer satisfactionfor     September23,20207:52PMNet debt1,500 new products4in Coles Own Brand sales70 renewalsNew transport hubs toProgress with Witron & Ocadooptimise logisticsautomation12345677ppImprovement in teammember engagement(percentage points)4,700 Direct milk sourcingcapacity of Coles Online111%Cash realisation518.3%Improvement in totalrecordable injuryfrequency rate7On a non-IFRS basis. Refer to Non-IFRS Information section on page 39.Q4 FY20, as measured by Tell Coles.Growth in sales per square metre on a moving annual total (MAT), or exit rate calculated on a rolling 12 months of data basis.Calculated as interest-bearing liabilities less cash and cash equivalents.Calculated as operating cash flow excluding interest and tax, divided by EBITDA (excluding the impacts of AASB 16 and Significant items).Comprising an interim dividend of 30.0 cents per share (paid) and a final dividend of 27.5 cents per share.Refer to glossary of terms on page 49 for definition.Indigenous team memberswith dairy farmers in VIC & NSW5 139mprovided in community supportShareholder informationDividends per share6 10bn doubledTailored store format strategy57.5cAlmostFinancial ReportEBITSupermarketssales density growth3at everyday low prices 1.4 bn 362m15.0%Remuneration Report88.2%Directors’ Report6.9%DRAFT 21  COL1634 AnnualReport d31a – Rnd 16Copy   September23,20207:52PMOperating and Financial ReviewHighlights for the year spanned our businessand store network, our customer base, our team of suppliersand our communities around Australia.

Coles Group Limited 2020 Annual ReportColes Group Limited 2020 Annual Reportsupply, logistics and services for the exceptional effortsthat have been made during a year marked by so manyextraordinary events.Customers and communityLeadership and teamWith our commitment to increase our Aboriginal andTorres Strait Islander participation levels to 5% of our totalteam members by 2023, further progress was made duringthe year. By the end of the 2020 financial year we hadsurpassed 4,700 team members which was an increase ofmore than 600 on the prior year.For the year ended 28 June 2020, our first full year as a relistedASX company, we saw strong financial results. On a statutorybasis, total sales revenue was 37,408 million; earnings beforeinterest and tax were 1,762 million; and net profit aftertax was 978 million ( 951 million excluding the impacts ofAASB 16 Leases and Significant items).Team member safety remains a priority and throughincreased training, technology and commitment we sawan improvement of 18.3% in our total recordable injuryfrequency rate through the year.Our final dividend for the year payable on 29 September2020 is 27.5 cents per share, fully franked, which togetherwith our interim dividend of 30.0 cents per share paid inMarch 2020, brings our full year dividend to 57.5 cents pershare. This is a dividend payout equivalent to 82 per cent ofour after tax profit (before Significant items).On behalf of the Board, I extend our thanks to all Colesteam members and to our many strategic partners in6I also extend my thanks to our Chief Executive, Steven Cain.Steven has driven the development and implementation ofour new strategy, the building of our leadership team, andthe competitive positioning of the business in this rapidlychanging world.In total, our community support was more than 139 millioncomprising 125 million from Coles directly and 14 millioncontributed by Coles’ customers, team members andsuppliers.I am also very pleased to welcome our new director PaulO’Malley. Paul O’Malley has a very strong financial andcommercial background within prominent ASX listedcompanies which will complement the Board and ourskills mix. Paul will join the Board on 1 October 2020 andwill stand for election at our 2020 Annual General Meetingwhich is being held virtually on 5 November 2020.Technology and sustainabilityThroughout our business we are investing for the future.This investment is much more than the expansion of ourfootprint; it is directed at how we can become moreefficient in meeting the needs of our customers and indoing so more responsibly.To all our shareholders, I express my thanks for yourcontinuing support of Coles and look forward to our makingfurther progress in the year ahead.In every area there are opportunities where we can improveour performance. Our progress on our hallmark projectsof automation of the two Witron distribution centres inQueensland and New South Wales and the developmentof the two Ocado Online customer fulfilment centres inVictoria and New South Wales, is advancing in line withour business plans. These two large projects are illustrativeof how we will make a difference to our future operatingeffectiveness as we partner with global technology leaderswith fit for purpose retail solutions.James Graham AMChairman, Coles Group LimitedBut there are many other projects throughout ourbusiness operations where new technology is makinga difference. Coles is committed to improving how weoperate and to lessening our impact on the environmentby improving our packaging, decreasing our waste,7Shareholder informationFinancialThese special community focused activities were inaddition to our long-term support for national food rescueorganisations, SecondBite and Foodbank; to children withcancer and their families through Redkite; to the crusade toaddress motor neurone disease – FightMND; as well as oursupport of hospitals caring for sick children across Australiathrough the sale of Mum’s Sause; and many others.Financial ReportWe also saw an increase of more than 5,000 teammembers at year end, as we responded to the significantsurge in customer demand across food and liquor drivenby COVID-19. This increase in part reflected our underlyingbusiness growth and in part the extra focus upon customerand team member hygiene and safety in response to thecoronavirus pandemic.I extend a special thanks to all my fellow directors who havegreatly contributed to the progress which we have beenable to make during this most unusual year. In particular, Iexpress appreciation on behalf of Coles to the contributionmade by Zlatko Todorcevski, who is retiring at the end ofSeptember 2020. Zlatko has been the Chairman of our Auditand Risk Committee since our demerger and has ensuredthat our systems and financial procedures have beenrobust and secure for our status as an ASX listed companyand his sound counsel has been greatly valued.Remuneration ReportDuring the year we significantly expanded our leadershipteam with the appointment of new Executives in: Liquor –DRAFT 1   COL1634 Darren Blackhurst; eCommerce – Ben Hassing; EmergingBusinesses – George Saoud; Transformation – Ian Bowring;AnnualReportand Corporate Affairs – Sally Fielke. Under the leadershipd4a    September23,20207:52PMof our Chief Executive, Steven Cain, Coles has built a strongleadership team with complementary skills which are wellaligned to our vision of becoming the most trusted retailerin Australia and growing long-term shareholder value.BoardDirectors’ ReportDRAFT 21  COL1634 An-Coles strengthened its financial position during the year,nualReport d31a – Rnd 16including extending the term of our debt maturity datesCopySeptember23,20207:52PMand, at year end, had net debt of 362 million, a 30%reduction on the prior year.In times of community stress, large corporations have theopportunity, and responsibility, to bring much neededresources to address special needs. During this last financialyear we provided special support to the emergencyservices and the rural fire services both financially and infood availability at the time of the East Coast bushfires;to our farmers and the Country Women’s Associationthrough our Coles Nurture Fund as we responded to thedrought-driven hardships experienced by so many in ruralcommunities; and to the elderly and disabled to whom weprovided special access to supermarkets and to our ColesOnline Priority Service in response to the restrictions arisingfrom COVID-19.Operating and Financial ReviewThe 2020 financial year was extraordinary forColes and the whole Australian community as droughts,bushfires and COVID-19 created significant demandsacross our businesses.The 2020 financial year was extraordinary for Coles andthe whole Australian community as droughts, bushfiresand COVID-19 created significant demands across ourbusinesses. Pleasingly, with the positive engagementof our team members, our suppliers, our customers andgovernments we were able to adapt to new challenges atpace, with emphasis upon safety and performance.Importantly we are continually working with our suppliersto improve not only our Coles Own Brand and proprietarygrocery product offerings but also to seek to ensure wesource product in accordance with our ethical sourcingpolicy and requirements. At the 2019 Annual GeneralMeeting concerns were raised as to the importance oflabour standards amongst suppliers and since that time wehave increased our resources and efforts in this importantarea. Working with suppliers, unions and other stakeholderswe are seeking to ensure that all aspects of our supplychain support our dual objectives of trust and sustainability.Throughout FY20 Coles played its part in supporting ourcustomers and the Australian community as we engagedour nearly 2,500 retail outlets and rapidly growing onlineservices.OverviewMessage fromthe Chairmanreducing our electricity needs and increasing ourutilisation of renewable energy sources. Full details ofthese initiatives are set out in our 2020 SustainabilityReport which is accessible at www.colesgroup.com.au.

Coles Group Limited 2020 Annual ReportColes Group Limited 2020 Annual ReportOverviewManaging Directorand Chief ExecutiveOfficer’s reportWe also worked closely with government experts and theSupermarkets Taskforce to formulate industry-wide hygieneand distancing protocols to keep our customers and teammembers safe and improve product supply.I am pleased to say that we have made substantial progressagainst each of the pillars of our strategy despite thechallenges the 2020 financial year has presented, as ourteam worked hard to fulfil our purpose of sustainably feedingall Australians to help them lead healthier, happier lives.As a designated ‘essential service’, Coles has played animportant role in ensuring Australians can safely access thefood, drinks and fuel they need.As demand surged in early March, we worked collaborativelywith suppliers, governments and industry stakeholders toincrease our supply chain capacity and also introducedCommunity Hour to serve the vulnerable and emergencyservices workers.In Liquor, our refreshed strategy is focused on being asimpler, more accessible, locally relevant drinks specialistwith a differentiated offer, while our Exclusive Liquor Brandscontinue to collect accolades, bringing home a total of 372medals and awards during the year.We continued tailoring our customer offer by using datadriven ranging tools, which allowed us to execute one ofthe largest range changes in Coles’ history and introducemore than 1,600 new product lines.We delivered trusted value through our campaigns toHelp Lower the Cost of Breakfast, Lunch and Dinner,including the introduction of more than 1,500 new productsat everyday low prices, while sales of Own Brand grew by10% to exceed 10 billion for the first time – accounting formore than 31% of supermarket sales.Smarter SellingOur Smarter Selling strategy achieved cost savings in excessof 250 million, driven by the increased use of technologyto drive efficiencies.Our values.Our behaviours.I am immensely proud of the way we truly worked as oneColes team to support our customers, our suppliers, ourcommunities and each other. To further strengthen ourculture, in June we launched our Coles values: Customerobsession, Passion and pace, Responsibility, and Healthand happiness.Coles Online briefly suspended service in March and Aprilin part due to limited and uncertain product availability,with capacity almost doubling across home delivery andcontactless Click & Collect at service desks and to thecar boot. Coles Online Priority Service, focusing on serviceThese values are supported by our LEaD behaviours ofLook ahead, Energise everyone and Deliver with pride,and were developed with input from our team members.89Shareholder informationAs ever, it was the tremendous efforts of our team membersthat made everything possible, and we were pleased tobe able to recognise their outstanding work with a thankyou payment to store and supply chain team members,doubling the team member discount on shopping at Colesand subsidising their flu vaccinations.Together during COVID-19We were pleased to report an improvement in customersatisfaction across Supermarkets, Liquor and Express in thefourth quarter.Financial ReportAs the community adapted to the ‘new normal,’ demandfor food and liquor remained elevated as venue closuresand working from home meant customers were increasinglycooking for themselves and staying in on weekends.COVID-19 restrictions reduced traffic on the road and fuelvolumes at Coles Express.We have grown our convenience offer, with dedicatedconvenience sections now in almost 150 supermarkets andwith more than 240 new lines launched, including the newColes Kitchen range from our recently acquired Jewel FineFoods manufacturing facility in Sydney.Inspire CustomersRemuneration ReportTo manage the surge in volumes, our supply chain team setDRAFT 1   COL1634 up pop-up distribution centres in a matter of days to increaseour capacity, while our recent investment in our integratedAnnualReportstock replenishment system and advanced data analyticsd4a    Sep

Coles Group Limited 2020 Annual Report Coles Group Limited 2020 Annual Report 1. DRAFT 1 COL1634_ AnnualReport_ d4a PM2 :5 ptem0 7 23, 20 ber 2 Se. DRAFT 21 COL1634_An-nualReport_d31a – Rnd 16 Copy September 23, 2020 7:52 PM. Welcome to the . Coles Group 2020 Annual Report. Our v

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