ANNUAL REPORT | My Assignment Tutor

Coles Group Limited ABN 11 004 089 936800 Toorak Road Hawthorn East Victoria 3123 AustraliaPO Box 2000 Glen Iris Victoria 3146 AustraliaTelephone +61 3 9829 5111www.coleANNUAL REPORTsgroup.com.au24 September 2020The ManagerCompany Announcements OfficeAustralian Securities ExchangeDear Manager,2020 ANNUAL REPORTIn accordance with the ASX Listing Rules, attached for release to the market is ColesGroup Limited’s 2020 Annual Report.This announcement is authorised by the Board.Yours faithfully,Daniella PereiraCompany SecretaryFor more information:Investor RelationsMark HowellMobile: +61 400 332 640E-mail:[email protected] RaynerMobile: +61 439 518 456E-mail:[email protected] Annual ReportSustainably feed all Australians to helpthem lead healthier, happier livesColes Group LimitedABN 11 004 089 936Coles Group Limited 2020 Annual ReportDRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PM DRAFT 21COL1634_AnnualReport_d31a – Rnd 16CopySeptember 23, 2020 7:52 PM Forward-looking statementsThis 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.These forward-looking statements are based on the Group’s good-faith assumptions as to the financial, market, risk, regulatory and otherrelevant 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.Readers 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 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.Any 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.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.’Coles 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.Aboriginal and Torres Strait Islander peoples are advisedthat this document may contain names and images ofpeople who are deceased.All references to Indigenous people in this documentare intended to include Aboriginal and/or Torres StraitIslander people.Coles Group Limited 2020 Annual Report1Welcome 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.Contents Overview2020 performance42020 highlights5Message from the Chairman6Managing Director andChief Executive Officer’s report8Our vision, purpose and strategy11How we create value12Sustainability snapshot14Support for customers, suppliers and communities19Governance at Coles24Operating and Financial Review30Board of Directors65Directors’ Report68Remuneration Report73Financial Report96Independent Auditor’s Report150Shareholder Information158 DRAFT 1COL1634_AnnualReport_September 23, 2020 7:52 PMd4a DRAFT 21COL1634_AnnualReport_d31a – Rnd 16CopySeptember 23, 2020 7:52 PM 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.Our purpose is tosustainably feed allAustralians to helpthem lead healthier,happier lives. DRAFT 1COL1634_for Supermarkets2AnnualReport_d4a September 23, 2020 7:52 PM$1.4bnEBIT1$362mNet debt4 DRAFT 21COL1634_AnnualReport_d31a – Rnd 16CopySeptember 23, 2020 7:52 PM Coles Group Limited 2020 Annual Report2020performance6.9%Sales growth157.5cDividends per share65.0%Supermarketssales density growth3111%Cash realisation518.3%Improvement in totalrecordable injuryfrequency rate788.2%Customer satisfaction7ppImprovement in teammember engagement(percentage points)1 On a non-IFRS basis. Refer to Non-IFRS Information section on page 39.2 Q4 FY20, as measured by Tell Coles.3 Growth in sales per square metre on a moving annual total (MAT), or exit rate calculated on a rolling 12 months of data basis.4 Calculated as interest-bearing liabilities less cash and cash equivalents.5 Calculated as operating cash flow excluding interest and tax, divided by EBITDA (excluding the impacts of AASB 16 and Significant items).6 Comprising an interim dividend of 30.0 cents per share (paid) and a final dividend of 27.5 cents per share.7 Refer to glossary of terms on page 49 for definition.Coles Group Limited 2020 Annual Report52020highlightsHighlights for the year spanned our businessand store network, our customer base, our team of suppliersand our communities around Australia.$10bn+in Coles Own Brand sales1,500+ new productsat everyday low pricesProgress with Witron & Ocadoautomation4,700+Indigenous team membersDirect milk sourcingwith dairy farmers in VIC & NSWAlmostdoubledcapacity of Coles Online$139mprovided in community supportTailored store format strategy70 renewalsNew transport hubs tooptimise logisticsColes Group Limited 2020 Annual Report6DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PMThe 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.FinancialFor 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).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).Coles strengthened its financial position during the year,including extending the term of our debt maturity datesand, at year end, had net debt of $362 million, a 30%reduction on the prior year.Leadership and teamDuring the year we significantly expanded our leadershipteam with the appointment of new Executives in: Liquor –Darren Blackhurst; eCommerce – Ben Hassing; EmergingBusinesses – George Saoud; Transformation – Ian Bowring;and Corporate Affairs – Sally Fielke. Under the leadershipof 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.We 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.With 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.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.On behalf of the Board, I extend our thanks to all Colesteam members and to our many strategic partners inMessage fromthe ChairmanThe 2020 financial year was extraordinary forColes and the whole Australian community as droughts,bushfires and COVID-19 created significant demandsacross our businesses.Coles Group Limited 2020 Annual Report7supply, logistics and services for the exceptional effortsthat have been made during a year marked by so manyextraordinary events.Customers and communityThroughout FY20 Coles played its part in supporting ourcustomers and the Australian community as we engagedour nearly 2,500 retail outlets and rapidly growing onlineservices.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.These 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.In total, our community support was more than $139 millioncomprising $125 million from Coles directly and $14 millioncontributed by Coles’ customers, team members andsuppliers.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.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.But 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,reducing 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.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.BoardI 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.I 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.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.To all our shareholders, I express my thanks for yourcontinuing support of Coles and look forward to our makingfurther progress in the year ahead.James Graham AMChairman, Coles Group LimitedColes Group Limited 2020 Annual Report8DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PMI 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.Together during COVID-19As 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.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 servicefor those most in need, including the elderly, was thenintroduced.We 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.To manage the surge in volumes, our supply chain team setup pop-up distribution centres in a matter of days to increaseour capacity, while our recent investment in our integratedstock replenishment system and advanced data analyticshelped to improve availability and ensure high-demandproducts were sent into stores to meet customer needs.As 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.As 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.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.These values are supported by our LEaD behaviours ofLook ahead, Energise everyone and Deliver with pride,and were developed with input from our team members.Managing Directorand Chief ExecutiveOfficer’s reportSince our successful demerger from Wesfarmers during the 2019 financial year,Coles has been executing our refreshed strategy to transform our business andlay the foundations for long-term sustainable growth. COVID-19 has seen Colesclassified as an ‘essential service’ and our focus has been on team and customersafety and supporting vulnerable Australians in our community.Coles Group Limited 2020 Annual Report9They will guide the day-to-day decisions and actions ofteam members, shaping the way we work together toget things done as we continue to transform Coles for asecond century of generating long-term returns for ourshareholders.Inspire CustomersWe were pleased to report an improvement in customersatisfaction across Supermarkets, Liquor and Express in thefourth quarter.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.We have prioritised building capabilities in a number ofareas where COVID-19 has accelerated existing consumertrends, including the growth of online shopping andcooking at home.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.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.Smarter SellingOur Smarter Selling strategy achieved cost savings in excessof $250 million, driven by the increased use of technologyto drive efficiencies.Coles provided $3 million in gift cards to around 6,000 rural fire brigades across Australia to thank volunteer fire fighters for helping to keep rural communities safe.Coles CEO Steven Cain is pictured at Wauchope with NSW Rural Fire Service Mid Coast District Incident Controller Kam Baker, Wauchope and King Creek Rural FireBrigade fire fighters, Coles NSW State General Manager Ivan and local Coles team members from the Lake Innes supermarket in Port Macquarie.Our values. Our behaviours. DRAFT 1 COL1634_leases to underpin the development of automated onlineTo our millions of customers across almost 2,500AnnualReport_customer fulfilment centres in Victoria and New South Walesby leading online retail technology experts Ocado.d4aSeptember 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16in their response to the ongoing challenges that we face asa community, and for their dedication to safely serving ourFurther progress was also made in tailoring our storeformats to the needs of local communities, with 70 renewalscompleted during the year, including 10 Format A, 31Format C and three Coles Local supermarkets.CopySeptember 23, 2020 7:52 PMcustomers with a smile.The first of our two distribution centres being built byglobal automation experts Witron is under construction inQueensland, and the second facility in New South Wales is inthe approvals stage. Meanwhile we have entered long-termI would like to thank the Board for their support and valuableguidance throughout the year, and our leadership teamfor their tireless efforts to ensure our business could keepdoing what it does best while simultaneously making thenecessary changes to set Coles up for long-term success.supermarkets, convenience and liquor stores, I thank you 10Coles Group Limited 2020 Annual Report This included streamlining our Store Support Centreand implementing new systems across Finance andProcurement, more efficient use of logistics so more truckscarry both inbound and outbound loads, new technologyto help our store teams order the right amount of stock,reduced energy consumption through use of LED lights andrefrigeration control systems, and improved measures toLooking aheadIn the 106 years since Coles was founded as a single storein Melbourne’s Collingwood, our Company has weatheredmany challenges. Few of them would be greater than thosethat we have faced over the past financial year. reduce stock loss in stores. Our financial positionadherence to the new social distancing guidelines thatkeep us all safe. To our suppliers and community partners,none of what has been achieved could have happenedwithout your collaboration, innovation and hard work forwhich I thank you sincerely.In line with our objective of providing shareholders withsustainable earnings growth and attractive dividends, wedelivered a total shareholder return of 31.7% for the year.Total dividends of 57.5 cents per share were declared inrelation to FY20.On a retail basis, full year sales revenue increased by 6.9%to $37,408 million with sales revenue growth across allsegments, and we were pleased to mark a return to growthin full-year Group EBIT – up 4.7% to $1,387 million on a retailbasis – the first increase since FY16.And finally to our shareholders – we will continue to transformColes into the most trusted retailer in Australia and deliverlong-term sustainable returns for you, your families and millionsof beneficiaries in Australia and beyond. Importantly, we had begun to see benefits of the newstrategy prior to the onset of COVID – providing assurancethat Coles will be a stronger, more sustainable business longafter the pandemic.I am extremely grateful for and proud of the resilience thatour more than 118,000 team members have demonstratedfor your understanding, patience, respectfulness andSteven CainManaging Director and Chief Executive Officer,Coles Group LimitedTo our millions of customers across almost 2,500supermarkets, convenience and liquor stores, I thankyou for your understanding, patience, respectfulnessand adherence to the new social distancingguidelines that keep us all safe.11Coles Group Limited 2020 Annual ReportOur vision, purposeand strategyOur visionBecome the most trusted retailer in Australiaand grow long-term shareholder value.Our purposeSustainably feedall Australians to helpthem lead healthier,happier lives.Inspire Customersthrough best valuefood and drinksolutions to makelives easier.Smarter Sellingthrough efficiency andpace of change.Win Togetherwith our teammembers, suppliersand communities.Coles Group Limited 2020 Annual Report12DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PMNurtureFundInnovationR&DFiveFreedomsfor animalwelfareOur economic value creation Australian farmersand producersSuppliers, processorsand packaging Coles Supermarkets has anAustralian-first sourcing policy toprovide our customers with qualityAustralian-grown fresh produce.Thousands of suppliers provide us withOwn Brand and proprietary brandedproducts. We are working with OwnBrand suppliers to improve Own Brand By doing this, we are supportingAustralian farmers and growers who provide us with healthy, qualityproducts. Our support includes the$50 million Coles Nurture Fund.help customers recycle. REDcyclesoft plastics recycling is availablein our supermarkets. packaging recyclability, includinglabelling on Own Brand products toTransport anddistributionWorking with our logistics partners,we are reducing our environmentalfootprint through more efficient fleetmovements. We are also ensuringcustomers are provided with quality,safe products by conductingselected quality checks whenproduce arrives at our fresh producedistribution centres, with additionalchecks for chilled products.Suppliers$29.9bnsupplier andservices spendTeam members$4.8bnpayments and benefitsto team membersShareholders$873mtotal dividendspaidGovernments$2.6bncash taxes paidand collectedCommunity$139mcommunitysupportHow wecreate valueAll figures above are as at 28 June 2020, with the exception of community support (30 June 2020).Coles Group Limited 2020 Annual Report13ColesOnlineColesStrategyConvenienceOur sustainability achievements1Retail andstore networkWe support local economic growththrough investment in new stores andinfrastructure, while continuing toreduce greenhouse gas emissions.Innovation is key to providing onlinegrocery and convenient shoppingexperiences to make life easier for ourcustomers. Providing safe, responsiblysourced, nutritious products atcompetitive prices is fundamental.TeammembersWith more than 118,000 teammembers, including the largestnumber of Aboriginal and Torres StraitIslander team members in Australia’sprivate sector, our workforce reflectsthe diversity of our customers andthe community. A safe and inclusiveworkforce for all is our priority.Customers andcommunityThrough community partnerships,we are supporting Australians andreducing our environmental impact.Our work with SecondBite andFoodbank provides Australians inneed with healthy, nutritious food thatmight otherwise go to waste. Disasterrelief and business continuity planssupport customers and communitiesin times of extreme weather eventsand other crises.We are driven by our purpose to sustainably feedall Australians to help them lead healthier, happierlives, which means we need to consider our socialand environmental impacts in all that we do. SustainableproductsBest Sustainable SeafoodSupermarket in AustraliaAwarded by MSC. Holderof the award since 2017Broadest range of RSPCAApproved products of anymajor Australian supermarketOwn Brand productsdisplaying HealthStar Rating2,400+ Sustainableenvironmental practicesPieces of flexible plasticthrough REDcycle since 20111bn+Waste diverted from landfill79%Greenhouse gas emissions(Scope 1 and 2) from 200936.5% SustainablecommunitiesMeals to people in needsince 2003 (equivalent of)147m+Funds to Redkite since 2013$38mGrants announced for 15producers through ColesNurture Fund in FY20$3.6m 1 All references are as at 30 June 2020, with the exception of funds to Redkite which is as at 28 June 2020.Coles Group Limited 2020 Annual Report14 DRAFT 1COL1634_AnnualReport_September 23, 2020 7:52 PMd4a DRAFT 21COL1634_AnnualReport_d31a – Rnd 16CopySeptember 23, 2020 7:52 PM Together with Michelin-starred chef and Coles ambassador Curtis Stone, Colesannounced a new partnership with the Stephanie Alexander Kitchen GardenFoundation in February 2020. Providing thousands of children across Australiaaccess to a pleasurable food education program helps them develop a healthyrelationship with food, self-confidence and life skills.15SustainabilitysnapshotJust over a year ago, we launchedour vision to become the most trustedretailer in Australia and grow long-termshareholder value. We also launchedour purpose to sustainability feedall Australians to help them leadhealthier, happier lives.Central to that purpose is trust andthat means delivering against our keysustainability pillars.Drought, devastating bushfires, a global pandemic – 2020brought challenges of exceptional scale. In this extraordinaryyear, our team members, suppliers and customers rose to thechallenges and provided essential supplies to Australians inneed, helping to bring our vision and purpose to life.Central to that vision and purpose is trust. We will build trust bycontinuously improving our management, performance andreporting in regard to social and environmental impacts andopportunities under the three key pillars of our SustainabilityStrategy – Sustainable communities, Sustainable productsand Sustainable environmental practices.We contribute to the followingUnited Nations Sustainable Development Goals:Coles Group Limited 2020 Annual Report16 DRAFT 1COL1634_AnnualReport_September 23, 2020 7:52 PMd4a DRAFT 21COL1634_AnnualReport_d31a – Rnd 16CopySeptember 23, 2020 7:52 PM Sustainable communitiesSustainable communities involves supporting our customers,team members and producers. It is about investing in andgiving back to the community and doing the right thing byfarmers, suppliers and their workers.Coles Supermarkets has an Australian-first sourcing policyto provide our customers with quality Australian-grown freshproduce as a first priority. In FY20, 96% of fresh produce, byvolume, was sourced from our supply partners from all overAustralia, excluding floral, nuts, dried fruit, sauces, dressingsand packaged salads. In FY20, 100% of fresh lamb, pork,chicken, beef, milk and eggs and 100% of Own Brandfrozen vegetables were Australian grown.During the year, we announced $3.6m in Coles NurtureFund grants provided to 15 recipients who are improvingtheir sustainability, rebuilding after bushfires and producingmore Australian made food and beverages.Sustainable communities means creating a workplacefor more than 118,000 team members that reflects thecommunities in which they live and work. With more than4,700 Aboriginal and Torres Strait Islander team members,Coles is proud to be the largest private sector employer ofIndigenous Australians.A company-wide Human Rights Strategy was introducedin FY20, including a refreshed Ethical Sourcing Policy andsupplier requirements.In a first for the Australian retail sector, Coles worked withthree key unions to develop the Coles Ethical Retail SupplyChain Accord which aims to achieve a safe, sustainable,ethical and fair retail supply chain for workers regardless oftheir employment, citizenship or visa status.More about our community partnerships and support canbe found in our 2020 Sustainability Report.Victorian dairy farmer Peter Hemphill (pictured with his grandchildren) wasamong 15 producers awarded a Coles Nurture Fund grant in FY20.Coles Group Limited 2020 Annual Report17Sustainable productsSustainable products focuses on healthy food choicesand healthy lifestyles. It also means sourcing productsresponsibly and ethically. It includes our commitment toanimal welfare and to responsibly sourced seafood.We introduced new health food ranges including veganand vegetarian options, and supported healthy lifestyleprograms. Our new three-year partnership with theStephanie Alexander Kitchen Garden Foundation givesthousands of children, at more than 2,000 schools and earlylearning centres, access to food education to help themdevelop a healthy relationship with food.In FY20, Coles was awarded the MSC Best SustainableSeafood Supermarket in Australia. The MSC has namedColes holder of the award since 2017, recognising that wehave the widest eco-labelled fresh seafood range of anyAustralian supermarket.We want to make life easier for our customers by offeringquality, safe and trusted products – sourced in an ethicaland transparent way – to help them make healthy andsustainable choices.As customers’ needs are changing, we continue to offer newranges and products. An affordable healthy food range waslaunched in FY20 and we provided more meat-free proteinalternatives. Our Own Brand food and drink standard rangeis now free of artificial colours and artificial flavours.We are committed to providing our customers with safe,high-quality Own Brand products. Our commitment issupported by our rigorous supplier requirements, ourauditing and inspection program and in-store standards.Julie and her son, Reece, with Mum’s Sause, which was launched in July 2019to raise funds to help sick children in hospitals across Australia as part of theCuring Homesickness initiative.Coles Group Limited 2020 Annual Report18 DRAFT 1COL1634_AnnualReport_September 23, 2020 7:52 PMd4a DRAFT 21COL1634_AnnualReport_d31a – Rnd 16CopySeptember 23, 2020 7:52 PM Sustainable environmental practicesSustainable environmental practices means reducing theimpact of our own operations as well as making it easier forcustomers to reduce their environmental impact.As a food retailer, we love food and do not want it to goto waste. Every Coles supermarket and distribution centreis connected with a food waste solution, something firstachieved at the end of FY19. Our first choice for unsold,edible food is to donate it to food rescue organisations.Following that, we have other food waste solutions includingdonation to farmers and animal or wildlife services, organicscollections and in-store food waste disposal equipment.Packaging continues to be a focus. In November 2019,Coles won the APCO’s large retailer industry award for ourachievements in sustainable packaging design, recyclinginitiatives and product stewardship.REDcycle soft plastics collection is offered in oursupermarkets. Since the program began at Coles in 2011,more than one billion pieces of soft plastic have beendiverted from landfill.We are facing into the impacts of climate change andneed to adapt to respond to extreme weather events andto maintain security of food supply. More information aboutour response to climate change is in the Risk Managementsection of this report.Coles has a responsibility to support our team members,customers, suppliers and the communities in which we liveand work and is committed to making a positive difference.Understanding and meeting these responsibilities are keyto achieving our vision to becoming Australia’s most trustedretailer and growing long-term value for our shareholders.Team members at our Coles Local Rose Bay store wear polo shirts madefrom 65% recycled plastic bottles.Coles Group Limited 2020 Annual Report19Support forcustomers, suppliersand communitiesColes supported farmers and communities dealing withthe impact of drought conditions across many parts ofAustralia during the past year. With help from our communitypartners, we also provided much-needed assistance toflood-affected communities.Responding to drought and floodsOver the past two financial years, Coles has committedmore than $18 million to drought relief. In FY20, Colesdonated $1 million from the Coles Nurture Fund to theCountry Women’s Association’s Drought Relief Fundto distribute to farming families affected by drought.In addition, Coles raised a further $864,476 for theCWA Drought Appeal through customer donationsat supermarkets and liquor stores and from the sale of$2 donation cards in the lead-up to Christmas.Together, these funds donated and raised by Coles in FY20for the CWA Drought Appeal resulted in more than 920farming families receiving grants to help them pay householdexpenses such as medical, energy and grocery bills.During October and November 2019, Coles donatedand delivered around 140,000 litres of drinking water tolocal communities in northern New South Wales includingTenterfield, Guyra, Glen Innes, Ebor and Armidale, wherelocal catchments were depleted by the combination ofdrought and bushfires.Amid heavy rainfall and flooding in parts of Queensland inFebruary 2020, Coles converted its delivery of goods fromrail to road to ensure food and groceries could reach ourcustomers.To help people and communities to recover from thebushfires, we also launched a fundraising appeal for RedCross. By raising $3.2 million for bushfire support, our fundsenabled Red Cross to provide grants to hundreds of peopleto help them meet immediate needs, make repairs, coverhospital costs or re-establish a safe place to live.Campaigns to support farmersWith many fresh produce suppliers finding their cropsimpacted by drought during the year, Coles worked withfarmers to vary our product specifications and workedwith industry stakeholders to encourage customers to lookbeyond a few surface imperfections. This provided valuablesupport to farmers by helping them sell their crops at thebest possible price, while ensuring ongoing supply of greatquality Australian fruit and vegetables for our customers.Flooding caused havoc on roads in some parts of New South Wales andQueensland in early 2020 while some areas barely received a drop of rain.Pictured is a Coles truck at Warriewood in northern Sydney in February.Coles Tenterfield Store Manager Kyle (left) with Tenterfield Shire Councillorand NSW Farmers local branch chair Bronwyn Petrie (middle), TenterfieldShire Deputy Mayor Greg Sauer (right) and local residents Howard andCarmel with one of many truckloads of donated bottled water. Colesdonated around 140,000 litres of bottled water to local communities innorthern New South Wales of which around 100,000 litres was donated toTenterfield residents.Coles Group Limited 2020 Annual Report20 DRAFT 1COL1634_AnnualReport_September 23, 2020 7:52 PMd4a DRAFT 21COL1634_AnnualReport_d31a – Rnd 16CopySeptember 23, 2020 7:52 PM Food donationsColes donated food, waterand other essentials to bushfireaffected communities andemergency services.We worked with Foodbank,donating 47 pallets of food, freshfruit, UHT milk, coffee, tea andsnacks for relief centres, aged carefacilities and emergency services.We supported animal sanctuariesand zoos including Mogo Zoo(Bateman’s Bay), Adelaide Koalaand Wildlife Hospital, KangarooIsland Wildlife Network, and LiveStock SA with donations of fruit,vegetables and animal feed.Firefighter donationsTo acknowledge the amazingcourage and dedication ofvolunteer firefighters, Colesdonated $3 million in gift cardsto over 6,000 rural fire brigadesacross Australia in December 2019.This provided essential fundsfor brigades to stock up suppliesof food and essentials for theirstations or run a thank you eventwith their members.The gift cards were distributedvia the NSW Rural Fire Service,Queensland Rural Fire Service,Country Fire Authority in Victoria,SA Country Fire Service, TasmanianFire Service, the ACT Rural FireService, Bushfire Volunteers (WA),WA Volunteer Fire and RescueService, WA Volunteer Fire andEmergency Service and Bushfires NT.Red Cross donationsThrough Coles Supermarkets,Coles Liquor stores and Coles Expressstores, we launched an appeal forthe Red Cross Disaster Relief andRecovery Fund in November 2019.By double matching customerdonations for a specific period,Coles contributed more than$1 million and together with ourcustomers provided more than$3.2 million to the fund.Our donations enabled Red Crossto provide emergency assistance,psychological first aid and longerterm community support toAustralians affected by bushfires.BushfiresColes regularly supports Australians through times of hardshipand natural disaster. During the summer bushfires, we playedan important role in supporting affected communities andemergency services with direct donations and fundraising tosupport longer-term relief.Coles Group Limited 2020 Annual Report21John, Regional Manager, at the Bateman’s Bay store (top left), Coles State General Manager for South Australia and Northern Territory, Sophie, at a fundraisingtrivia night that raised funds for people affected by the Cudlee Creek and Kangaroo Island bushfires (top right), the burnt remains of a Coles team member’shouse and car (middle left), residents evacuated as fires sweep through Bateman’s Bay in New South Wales (middle right) and fire trucks re-fuelling at the MossVale Coles Express during the bushfires (bottom).Bateman’s BayColes Group Limited 2020 Annual Report22DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PMCOVID–19The COVID-19 pandemic highlighted our role as an essentialservice to the community, and we worked closely withgovernment and industry bodies to ensure all Australians hadsafe access to essential food and groceries.Safety our greatest priority Since the outbreak of COVID-19, Coles has played animportant role in providing an essential service to thecommunity while prioritising the safety of our teammembers and customers.on Tuesdays and Thursdays.Team member and customer safety is our highest priority,and Coles followed the expert advice from state andTo further support more vulnerable Australians, weestablished Coles Online Priority Service (COPS) in Aprilto offer home delivery and Click & Collect services tocustomers who were unable to visit a store. federal health authorities on how to reduce the risk ofAnother way we provided extra support to disadvantagedpeople was by donating additional food and groceries to infection in our stores and through our supply chain.The frequency with which we clean our stores was increased, particularly in high-traffic areas such as checkouts, whilesafety screens and floor decals were installed to assist withsocial distancing measures including the introduction of limitson the number of customers in stores at our busiest times.Responding to demandour stores and distribution centres, we donated extra foodand groceries to the retail value of nearly $7.9 million toFoodbank and SecondBite to distribute to food charitiesacross Australia.In April, we also teamed up with Indigenous corporationsand local charities to deliver and donate more than 80 To help address the unprecedented customer demandseen early in the outbreak, we invested in our supply chain,opening pop-up distribution centres in New South Wales,Victoria and Queensland.We introduced product limits on the most in-demand products so that more customers could access essentials.To serve more customers, replenish shelves faster, keepstores cleaner and offer employment for Australians whose We also worked with suppliers to prioritise production ofgroceries they could deliver in the greatest volume untildemand returned to more normal levels.Prioritising our vulnerable citizens We also provided Australia’s elderly and most vulnerable,together with emergency and healthcare workers, withmembers safe. better access to groceries by introducing Coles CommunityHour at all our supermarkets across Australia in March.This initiative, which ran until May 8, involved temporarilychanging our trading hours to 7am to 8pm on weekdaysand dedicating the first hour of trade exclusively to elderlyand vulnerable customers on Mondays, Wednesdays andFridays; and to emergency services and healthcare workersour food relief partners, Foodbank and SecondBite, duringCOVID-19. In addition to the food we regularly donate frompallets – the equivalent of 50 tonnes – of food and groceryessentials to Indigenous communities across the NorthernTerritory.Recruiting Australians in storejobs had been impacted by COVID-19, we recruitedthousands of additional casual team members.More security guards were also employed to helpmanage customer numbers and keep customers and teamTeam members working throughout the challengingperiod were rewarded for their extraordinary effortswith an additional team member discount and a thankyou payment for those working in stores and supply chain.Coles Group Limited 2020 Annual Report23Throughout COVID-19, we prioritised the safety of our team members and customers, providing Australians access to essential goods and services, andsupporting communities and people in need. Customers at Coles Southland (top), Brisbane mother Anna with her daughter Olivia using sanitiser instore (middle left), Salvation Army’s Major Brendan Nottle with Coles Online team member Matthew and Collingwood Football Club Director of Stadiaand Community, David Emerson, with donations of 2,000 convenience meals as well as frozen vegetables and pantry items for residents in Magpie Nest’shousing program which accommodates people who have been sleeping rough on Melbourne’s streets and women fleeing domestic violence (middle right);and Coles Eastland Store Support Manager Drew delivers groceries to 97 year-old World War II veteran Des (bottom right).Coles Group Limited 2020 Annual Report24 DRAFT 1COL1634_AnnualReport_September 23, 2020 7:52 PMd4a DRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PMGovernanceat ColesIn our first full year as a listed entity, Coles’ corporate governanceframework has been integral to our response to the events of FY20.We are committed to the highest standards of corporate governanceand believe that a robust and transparent governance framework iscentral to our success. BoardOverseeing Coles’ response to the unforeseen nationaland global challenges presented during FY20 includingtheir impact on our team members, customers, suppliersand local communities.Hosting the Company’s first Annual General Meeting inNovember 2019, conducting the first Board performancereview and adopting the new Coles values which build onthe existing LEaD framework and behaviours.StrategyExecuting the first year of our strategy, with good progressmade on delivering our vision to ‘Become the most trustedretailer in Australia and grow long-term shareholder value’underpinned by our three strategic pillars: Inspire Customers,Smarter Selling and Win Together. This includes progressagainst our eight strategic KPIs, which were laid out tomeasure the success of our strategy.Risk managementImplementing initiatives that continue to drive an uplift in our riskmanagement maturity. This has entailed the establishment ofour risk appetite framework, including definition, measurement,monitoring and reporting of risk appetite for our material risks.We also implemented a technology platform to facilitate themanagement of risks and major compliance programs.Diversityand inclusionContinuing our progress towards achieving our BetterTogether objectives, including in relation to gender diversity,with the proportion of men and women across the entireColes workforce for FY20 being 49.3% men and 50.7% women.In addition, at the end of FY20 we employed more than 4,700Aboriginal and Torres Strait Islander people across our stores,distribution centres and store support centres, representing3.8% of team members. The Group’s FY20 key corporate governance highlights and focus areas included:Coles Group Limited 2020 Annual Report25Board role and responsibilitiesThe Board provides leadership and approves the strategicdirection and objectives of the Group in the long-terminterests of, and to maximise value to, shareholders. TheBoard is accountable to shareholders for the overallperformance of the Company, having regard to theinterests of other stakeholders, including team members,customers, suppliers and the broader community.The Board has a charter that outlines its responsibilities,including powers that are expressly reserved to the Board,and powers that are specifically delegated to the CEO andmanagement.Board compositionThe Constitution states that the number of directors shall benot less than three directors and not more than 10 directors.Other than the Managing Director, directors may not retainoffice without re-election for more than three years orpast the third annual general meeting following their lastelection or re-election. Any newly appointed directorsare required to seek election at the first annual generalmeeting after their appointment.The Board will review periodically its compositionand the duration of terms served by directors, uponrecommendation from the Nomination Committee. The Board Managing Director andChief Executive Officer Executive Leadership Team Coles Team Members Audit and RiskCommitteePeople andCultureCommitteeNominationCommittee Corporate governance frameworkColes’ 2020 Corporate Governance Statement contains acomprehensive overview of our corporate governanceframework and highlights and is available atwww.colesgroup.com.au/corporategovernance.Chairman James Graham AM addresses shareholders at the first Coles Annual General Meeting in November 2019.Coles Group Limited 2020 Annual Report26DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PMBoard skills matrixThe Board recognises the importance of having directorswho possess a broad range of skills, background, expertise,diversity and experience in order to facilitate constructivedecision-making and facilitate good governanceprocesses and procedures.The Board, on the recommendation of the NominationCommittee, determines the composition, size and structurerequirements for the Board and will regularly review its mixof skills to make sure it covers the skills needed to addressexisting and emerging business and governance issuesrelevant to the Company.The current mix of skills and experience represented on theBoard is set out in the skills matrix below: SKILL/EXPERIENCEEXPLANATIONExperience serving on boards in diverse industries and fora range of organisations, including public listed entitiesor other large, complex organisations. An awareness ofglobal practices and trends. Experience in implementinghigh standards of governance in a large organisation andassessing the effectiveness of senior management.Effective senior leadership in a large, complex organisationor public listed company. Successfully leading organisationaltransformation and delivering sustained business success,including through line management responsibilities.Senior executive or other experience in fnancial accountingand reporting, internal fnancial and risk controls, corporatefnance and/or restructuring, corporate transactions, includingability to probe the adequacies of fnancial and risk controls.Demonstrated ability to identify and critically assess strategicopportunities and threats and to develop and implementsuccessful strategies to create sustained, resilient businessoutcomes. Ability to question and challenge on deliveryagainst agreed strategic planning objectives.Experience overseeing or implementing a company’s cultureand people management framework, including successionplanning to develop talent, culture and identity. Board orsenior executive experience in applying remuneration policyand framework, including linking remuneration to strategyand performance, and the legislative and contractualframework governing remuneration.Understanding of and experience in identifying andmonitoring key risks to an organisation and implementingappropriate risk management frameworks and proceduresand controls.Senior management experience in the retail and fast movingconsumer goods (FMCG) industry, particularly in the foodand liquor industry, including an in-depth knowledge ofmerchandising, product development, exporting, logisticsand customer strategy.Advanced understanding of customer service deliverymodels, benchmarking and oversight.Senior executive experience in managing or overseeing theoperation of supply chains and distribution models in large,complex entities, including retail suppliers.Senior manager or equivalent experience in national orinternational business, providing exposure to a range ofinterstate or international political, regulatory and businessenvironments.Experience in property development and asset management.Senior executive experience in consumer and brandmarketing and in e-commerce and digital media, includingin the retail industry.Expertise and experience in the adoption and implementationof new technology. Understanding of key factors relevant todigital disruption and innovation, including opportunitiesto leverage digital technologies and cyber security andunderstanding the use of data and analytics.Identifcation of key health and safety issues, includingmanagement of workplace safety, and mental and physicalhealth. Experience in managing and driving environmentalmanagement and social responsibility initiatives, includingin relation to sustainability and climate change.Senior management experience working in diverse political,cultural, regulatory and business environments. Experiencein regulatory and competition policy and influencing publicpolicy decisions and outcomes, particularly in relation toregulation relevant to food and liquor industries. Number of Directorswith the requisite skillCorporategovernance8Executiveexperience8Financial acumen8Strategic thinking8People, culture andremuneration8Risk management8Retail and FMCGskills and experience6Customer servicedelivery7Supply chains6Interstate / globalbusiness experience8Propertydevelopment andasset management4Marketing6Digital technologyand innovation8Sustainability,environment, healthand safety7Regulatory andpublic policy7 Coles Group Limited 2020 Annual Report27James Graham AMChairman of the BoardChairman of the NominationCommittee and Memberof the People and CultureCommitteeDavid CheesewrightMember of the NominationCommittee and the Peopleand Culture CommitteeAbi ClelandMember of the NominationCommittee and the Peopleand Culture CommitteeWendy StopsMember of the NominationCommittee and the Auditand Risk CommitteeSteven CainManaging Director andChief Executive OfficerJacqueline ChowMember of the NominationCommittee and the Auditand Risk CommitteeRichard FreudensteinChairman of the Peopleand Culture Committeeand Member of theNomination CommitteeZlatko TodorcevskiChairman of the Auditand Risk Committeeand Member of theNomination CommitteeBoard ofDirectorsBiographical details of the Board of Directors can be found on pages 66–67.Coles Group Limited 2020 Annual Report28DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PMA culture of acting lawfully,ethically and responsibly Coles has a number of company policies that promote aculture of acting lawfully, ethically and responsibly andoutline expected standards of behaviour. These policiesinclude the following:Anti-bribery and Corruption PolicyCode of ConductColes has an Anti-bribery and Corruption Policy. In FY20,the Board approved updates to the policy in response toregulatory changes. The policy stipulates that Coles has zerotolerance for bribery and corruption in any form. It prohibitsdirectors and team members from engaging in activity Coles has a Code of Conduct which sets out the standardsof behaviour which are expected of its directors and teammembers in their interactions with customers, suppliers, thecommunity and each other. The Code of Conduct wasreviewed in FY20 and was updated to reflect the Company’svision, purpose and strategy as well as the values and LEaDbehaviours. Our values of Customer obsession, Passion and pace, Responsibility and Health and happiness define what’simportant to us, and our LEaD behaviours of Look ahead,Energise everyone and Deliver with pride guide how we workSustainability, Health, Safety and WellbeingColes is committed to providing a safe and healthy as a team and continue to build on the strong relationshipsenvironment for team members, customers, suppliers,contractors, visitors and supply chain partners. The Health, with our suppliers and customers.Whistleblower PolicyAs part of Coles’ commitment to the highest standards ofconduct and ethical behaviour in all its business activities, the Company has a Whistleblower Policy to encourageanyone to come forward with concerns. The policy, whichwas reviewed and updated in FY20, requires Coles teammembers, directors and officers who have reasonablegrounds to suspect that ‘Potential Misconduct’ hasoccurred or is occurring within or against Coles to make areport. The policy also encourages anyone else who hasreasonable grounds to suspect that ‘Potential Misconduct’has occurred or is occurring within or against Coles to makea report. Potential Misconduct is any suspected or actualmisconduct or an improper state of affairs or circumstancesin relation to Coles. It includes any unethical, illegal, corrupt,fraudulent or undesirable conduct or any breach of Coles’policies such as its Code of Conduct by a Coles director,team member, contractor, supplier, tenderer or any otherperson who has business dealings with Coles.Securities Dealing PolicyColes has a Securities Dealing Policy to ensure compliancewith insider trading laws, protect the reputation ofthe Group, its directors and team members, maintainconfidence in the trading of the Company’s securitiesand prohibit specific types of transactions. In general,directors, members of the Executive Leadership Team andother executives at the General Manager level and above(Restricted Persons) may not deal in Coles’ securities duringspecified periods (known as ‘blackout periods’) that coverthe period leading up to and immediately following therelease of the quarterly retail sales results, half-yearly resultsand full-year results. Outside of those blackout periods,Restricted Persons must seek prior approval to deal in Coles’securities from the Company Secretary (or their delegate). that constitutes bribery or corruption and sets out a numberof guidelines to assist team members to determine whatconstitutes bribery or corruption. It covers any activity orbehaviour undertaken in connection with Coles, regardless ofthe geographical location in which that activity or behaviouroccurs.Safety and Wellbeing Policy describes the systems andprocesses in place to manage the risks and hazards thatcome with operating Coles’ business and ensure thatColes’ actions are appropriate to our risk profile. Coles Group Limited 2020 Annual Report29Steven CainManaging Directorand ChiefExecutive OfficerMatthew SwindellsChief OperationsOfficerKris WebbChief PeopleOfficerDarren BlackhurstChief ExecutiveLiquorGeorge SaoudChief ExecutiveEmergingBusinessesSally FielkeGeneral ManagerCorporate AffairsLeah WeckertChief FinancialOfficerThinus KeevéChief Sustainability,Property & ExportOfficerRoger SniezekChief InformationOfficerIan BowringGroup ExecutiveTransformationGreg DavisChief ExecutiveCommercial& ExpressLisa RonsonChief MarketingOfficerDavid BrewsterChief Legal& Safety OfficerDaniella PereiraCompanySecretaryExecutiveLeadership TeamBen HassingChief ExecutiveeCommerceColes Group Limited 2020 Annual Report30 DRAFT 1COL1634_AnnualReport_September 23, 2020 7:52 PMd4a DRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Operating and Copy September 23, 2020 7:52 PMFinancial ReviewColes Group Limited 2020 Annual Report31Coles is a leading Australian retailer selling customerseveryday products including fresh food, groceries, generalmerchandise and liquor, through its extensive store networkand online platforms.Coles also sells convenience products and, under its alliancewith Viva Energy (Viva), is a commission agent for retailfuel sales operating under the Coles Express brand. Colesoperates some of Australia’s most well recognised brands,including Coles, Coles Local, Coles Express, Liquorland,First Choice Liquor Market and Vintage Cellars. In addition,Coles sells customers financial and lifestyle services and isa 50% shareholder of flybuys, a loyalty program coveringmore than six million active households.Coles operates and maintains 2,447 stores nationallyacross its businesses and employs more than 118,000 teammembers.Coles’ core competencies include merchandisingand supplier relationships, marketing, maintaining andoperating a national store network, operating a fullyintegrated supply chain, including logistics, and a nationaldistribution centre network.The Group’s reportable segments are:• Supermarkets: fresh food, groceries and generalmerchandise retailer with a national network of 824supermarkets, including Coles Online and ColesFinancial Services• Liquor: liquor retailer with 910 stores nationally underthe brands Liquorland, First Choice, First Choice LiquorMarket and Vintage Cellars, including online liquordelivery services through Coles Online and Liquor Direct• Express: convenience store operator and commissionagent for retail fuel sales across 713 outlets nationallyOther business operations that are not separately reportable,such as Property, as well as costs associated with enterprisefunctions, such as Treasury, are included in Other.Our vision is to become the most trusted retailer in Australiaand grow long-term shareholder value. Achieving this visionrequires us to deliver on our purpose, which is to sustainablyfeed all Australians to help them lead healthier, happier lives.Our strategy, ‘Winning in our Second Century’, representsour plan to deliver on this purpose. There are threestrategic pillars: Inspire Customers, Smarter Selling, andWin Together. Across each of these pillars, we are planningto win in our second century by ensuring that our strategydelivers a competitive advantage through five strategicdifferentiators:1. Win in online food and drinks with an optimised storeand supply chain network2. Be a great value Own Brand powerhouse anddestination for health3. Achieve long-term structural cost advantage throughautomation and technology partnerships4. Create Australia’s most sustainable supermarket5. Deliver through team engagement and pace ofexecutionWe have made progress against each of these three pillarsover the past year, supported by our existing Look ahead,Energise everyone and Deliver with pride (LEaD) behavioursframework and our newly-launched Coles values.Business modeland strategyColes operates and maintains 2,447 storesnationally across its businesses and employsmore than 118,000 team members.Coles Group Limited 2020 Annual Report32DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PMInspire Customers through best value food and drink solutionsto make lives easier.• Customer obsessed• Tailored offer with trusted and targeted value• Own Brand powerhouse• Destination for convenience and health• Leading anytime, anywhere shopping• Accelerate growth through new markets Delivering inspiring solutions, with the right offer at the rightprice, where and when our customers want it.At Coles, we strive to be customer obsessed and our customersare responding, with our customer satisfaction score, asmeasured by Tell Coles, increasing to 88.2% in the fourthenhancing our customer offer to ensure we are theirpreferred destination for convenience and health solutions.Customers are increasingly seeking options in terms ofwhere and when they shop. To this end, Coles is investingto become Australia’s leading digital retailer, with online quarter as availability improved following initial COVID-19pantry stocking impacts (83.4% in the third quarter). Customer obsession pervades our strategy. Landing theright offer in the right location and ensuring our customerstrust Coles to deliver them the best value, with 20% of FY20sales at everyday low prices and the ‘Helping lower the costColes is also offering solutions to new customer groups,continuing the drive to expand both our export and B2Bbusinesses. Coles recently opened an office in Shanghai tobetter support our export customers in Asia. of…’ campaign focused on lowering the cost of breakfast,lunch and dinner.Continuing to innovate to build an Own Brand powerhouse,and reinforcing the 10% sales growth achieved in FY20, arecritical to our commitment to deliver trusted value and tolower the cost of living for our customers through affordablequality.Coles is also delivering on those areas that are increasingin importance for our customers as lifestyles change.This includes expanding our convenience meal rangeand rolling it out to approximately 150 stores in FY20, andsales growing by 18% in FY20, by delivering an expanded,personalised and targeted offer online.Inspire CustomersIn 2020, Coles launched a ‘What’s for Dinner?’ campaign to provide customers with a collection of easy and fast recipes to produce tasty meals at great value.Coles Group Limited 2020 Annual Report33Smarter Selling through efficiency and pace of change.• Technology-led stores & supply chain• Strategic sourcing• Optimised network and formats• Efficient and agile Store Support CentresColes is committed to establishing a structural costadvantage by increasing efficiency through rapidinnovation and execution at pace. Technology and digitalinvestment supporting efficiency and automation in oursupply chain, stores and Store Support Centre is critical,as is the continued optimisation of our network and storeformats, and our supplier network.The technology-led optimisation and automation of oursupply chain to reduce costs and improve availability iscontinuing to accelerate with construction starting on ourfirst fully automated distribution centre in Queensland.Leases have also been signed for two online fulfilmentcentres in Sydney and Melbourne that will enable Coles towin in online food and drinks. Technological innovation is acritical element of efficiency in the Store Support Centre withmultiple SAP system investments underway or completed.Coles is building an optimised store network by openingnew stores in key network gaps and growth corridors, whileclosing underperforming stores.This process of optimisation is being reinforced by anongoing program of store renewals, with the rollout of‘Format A’ stores, a premium mainline supermarket formatfor our best trading stores, and ‘Format C’ stores, a highlyefficient format for lower trading stores that allows Coles tocontinue to deliver a high quality offer to customers thatmay otherwise not be able to access that offer.Coles is also rolling out the innovative Coles Local format,a premium smaller format supermarket that delivers bothgreat value and premium solutions to customers.Coles now has 29 Format A stores, 33 Format C and fourColes Local stores across the network, including the firstColes Local in New South Wales at Rose Bay.Smarter SellingTeam members Karra and Jess at the Parkinson Distribution Centre in Brisbane plan logistics for the transport of food and groceries across Queensland.Coles Group Limited 2020 Annual Report34DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PMWin TogetherWin Together with our team members, suppliers andcommunities.• Wellbeing and safety in our DNA• Great place to work• Drive generational sustainability• Better together through diversity• Innovation through partnershipsColes is focused on helping all Australians to lead healthierand happier lives, including our team members, oursuppliers and our communities.Ensuring the wellbeing and safety of team members is a keypart of making Coles a great place to work and partnerwith. In FY20, Coles improved its TRIFR by 18.3% to 22.7. To help deliver on our purpose, Coles is committed toattracting, engaging and retaining the very best talent.adoption of Coles’ first Human Rights Strategy, and thestrengthening of our ethical sourcing team with dedicated Engagement continues to improve, with our engagementscore increasing by seven percentage points in FY20.team members with specialised skills. Coles is committed to driving generational sustainabilityby creating Australia’s most sustainable supermarket.Our Sustainability Strategy, aligned with the UnitedNations Global Compact and United Nations SustainableDevelopment Goals, is focused on supporting sustainablecommunities, delivering sustainable products, andfollowing sustainable environmental practices.Our support for Australian communities has never beenmore apparent than in the drought, bushfire and COVID-19pandemic affected FY20. Coles’ contribution to theAustralian community in FY20 included donations of giftcards to rural fire brigades and additional food and groceriesto charity partners. We are focused on making life easier forour customers by offering quality, trusted products whileat the same time, working to minimise our environmentalimpacts through sustainable environmental practices.Coles is committed to being a diverse and inclusiveworkplace that is reflective of the customers and communitywe serve. Coles is proud to be Australia’s largest private sectoremployer of Aboriginal and Torres Strait Islander people.Coles believes that respect for human rights is essentialto achieving Coles’ vision to become the most trustedretailer in Australia. We have continued to enhance ourEthical Sourcing Program, including the development andFY17 FY1838.834.427.8*22.7FY19 FY20Total recordable injury frequency rate (TRIFR)Number of all injury types per million hours worked7ppImprovement in team member engagement(percentage points)* Restated due to maturation of dataColes proudly announced a five-year partnership in FY20 with the AFL.The stunning growth of AFLW has made a powerful statementabout inclusion of females in professional sport.AFL General Manager Commercial Kylie Rogers said, ‘The partnershipis a natural fit, with both the AFL and Coles dedicated to giving back tolocal communities and providing opportunities for all Australians. Ourcommitment to each other ensures we can continue to invest back intoour sport to promote participation and growth at all levels of the game.’Coles Group Limited 2020 Annual Report36DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PM DRAFT 21COL1634_AnnualReport_d31a – Rnd 16CopySeptember 23, 2020 7:52 PM GroupperformanceFor continuing operations of the Group: $MFY20FY19CHANGESales revenueSupermarkets32,99330,9936.5%Liquor3,3083,2053.2%Express1,1073,978(72.2%)Group sales revenue37,40838,176(2.0%)EBITSupermarkets1,6181,19135.9%Liquor1381333.8%Express3346(28.3%)Other(27)(27)–Significant items–124n/m1Group EBIT1,7621,46720.1%Financing costs(443)(42)n/m1Income tax expense(341)(347)(1.7%)Profit after tax9781,078(9.3%)Retail (non-IFRS)2Group sales revenue337,40835,0016.9%Group EBIT41,3871,3254.7%Profit after tax49518887.1% 1 n/m denotes not meaningful.2 Refer to Non-IFRS Information section for a comparison of statutory (IFRS) and retail (non-IFRS) results.3 Retail sales revenue for FY19 excludes fuel sales and hotel sales.4 Retail EBIT and profit after tax excludes the impact of AASB 16 and significant items in FY20, and hotels and significant items in FY19.Highlights• Statutory sales revenue growth of 6.5% in Supermarkets and3.2% in Liquor• Group EBIT on a retail (non-IFRS) basis returned to growth forthe first time in four years• Robust balance sheet with investment-grade credit metrics• The Board has determined a fully franked final dividendof 27.5 cents per sharePerformance overviewThe financial and operating performance of the Group ispresented on a statutory (IFRS) basis. Results prepared on aretail (non-IFRS) basis have also been included to supportan understanding of comparable business performance.Further details relating to the presentation of retail resultsare provided in the Non-IFRS Information section.Coles Group Limited 2020 Annual Report37Statutory Sales revenue for the Group reduced by 2.0%to $37,408 million, due to a 72.2% reduction in Expressrevenues driven by the move to a commission agent modelunder the New Alliance Agreement, effective 1 March2019. In accordance with the terms of the New AllianceAgreement, Express no longer recognises gross fuel salesrevenue; however, it is entitled to commission income fromfuel sold at Alliance sites (recognised in ‘other operatingrevenue’). Partly offsetting this decline was sales growth inthe Supermarkets and Liquor segments.On a retail basis, sales revenue for the Group increased 6.9%to $37,408 million driven by improved trading performancein Supermarkets from successful value and collectiblecampaigns, tailored range reviews and Own Brand salesgrowth. Liquor revenue also increased from sales growthin Exclusive Liquor Brands (ELB) and benefits from FirstChoice Liquor Market conversions. Both Supermarkets andLiquor experienced a trading uplift in the latter part of theyear from increased demand for in-home consumptionassociated with the COVID-19 pandemic.Statutory Group EBIT increased 20.1% to $1,762 millionprimarily due to the impact of a new accounting standard,AASB 16 Leases (AASB 16), which was effective for theGroup from 1 July 2019. This resulted in an increase in EBIT of$375 million for the year. In accordance with an allowableelection under the standard, prior year comparatives havenot been restated. For a more detailed analysis of thefinancial effects of applying AASB 16, refer to Impact ofAASB 16 Leases below. Partially offsetting this increase wasa pre-tax gain of $124 million relating to significant itemsrecognised in the prior year.On a retail basis, Group EBIT increased 4.7% to $1,387million reflecting improved trading performance and costmanagement initiatives in Supermarkets, partly offset bythe New Alliance Agreement and lower fuel volumes inExpress. Liquor EBIT remained consistent with the prior year.Statutory profit after tax for the Group decreased 9.3% to$978 million driven by lower Express earnings, the net costassociated with the application of AASB 16, and a reducednet profit contribution from significant items relative tothe prior year. Collectively, these impacts offset growth inSupermarkets earnings during the year.On a retail basis, profit after tax increased by 7.1% to $951million driven by earnings growth in Supermarkets, partlyoffset by lower fuel volumes in Express.Impacts of COVID-19Coles has played an important role during the COVID-19pandemic, providing an essential service to the communitywhile prioritising the safety of our team members andcustomers.Trading impactsSupermarkets and LiquorCOVID-19 impacted Coles significantly in the second halfof the financial year, starting in late February with a spikein trade from customer pantry stocking amid growingconcerns of a global pandemic. Demand continued to buildin Supermarkets, peaking in late March, as governmentimposed social distancing measures were introduced.To meet the challenge of unprecedented customerdemand, Coles worked closely with suppliers and supplychain partners to ensure stock was delivered to storesas quickly as possible, including the opening of popup distribution centres in New South Wales, Victoria andQueensland. Limits were also introduced for the most indemand products so that more customers could accessessentials. In March, the Coles Online platform wasrepurposed as a priority service for vulnerable customers,impacting ordinary trading operations until late April whenthe platform was fully reopened to all customers. To furthersupport the community, Coles donated additional foodand groceries to our charity partners SecondBite andFoodbank to distribute to food charities across Australia.Supermarkets trading levels moderated in April, howeverremained above that experienced pre-COVID-19. Storeand service costs also remained elevated, reflectingthe need for increased cleaning/sanitising and ongoingmeasures to support social distancing in stores.Liquor sales remained elevated throughout the fourthquarter as government restrictions on the opening ofhotels, pubs, clubs and licensed venue operators remainedin place across most states.Throughout this time, Coles’ priority was to maintain thesafety of team members and customers by investing instore service, security and cleaning. This focus includedthe installation of safety screens and signage to assistwith social distancing measures and limiting the numberof customers in stores at our busiest times. To recognisethe significant commitment of our team during thisunprecedented period, our team member discount wastemporarily doubled on eligible purchases and thank youpayments were also made to our store and distributioncentre team members.ExpressColes Express was adversely impacted by lower fuelvolumes associated with the government-imposed stayat-home measures. The decrease in road traffic resulted insignificantly lower revenue, while costs increased to supportsafety measures in store.With the easing of these measures late in the year, fuelvolumes began to increase but did not return to preCOVID-19 levels. Earnings remained under pressure withfixed costs and ongoing safety measures in store more thanoffsetting revenue generated for the second half of thefinancial year.Coles Group Limited 2020 Annual Report38DRAFT 1 COL1634_ AnnualReport_in QVC at the reporting date.with lease assets being less than operating lease expensesd4aSeptember 23, 2020 7:52 PMno longer recognised.ReceivablesThe timing and recoverability of receivables has beenclosely monitored for COVID-19 impacts on customersand suppliers. Where appropriate, the deterioration incredit quality has been considered in the measurement ofexpected credit losses. No material financial impacts havebeen recognised in the reporting period.The application of AASB 16 resulted in an unfavourableimpact to profit after income tax of $17 million, due to theelimination of operating lease expenses being more thanoffset by the recognition of depreciation and financingcosts associated with the Group’s AASB 16 lease portfolio.Award covered salaried team member reviewSelf-insurance liabilitiesIn February 2020, Coles announced it was conducting areview into the pay arrangements for team members whoreceive a salary and are covered by the General RetailIndustry Award 2010 (GRIA). The review does not relate toteam members who are remunerated in accordance withapproved enterprise agreements and who comprise over90% of our workforce. As announced in February 2020,Coles recognised a provision of $20 million in its half yearreport in relation to expected remediation costs.Coles engaged an independent actuary to ensureactuarial liabilities appropriately reflect all relevant risksas at 28 June 2020. COVID-19 assumptions have not beenmaterial to the determination of self-insurance liabilities asat the reporting date.LeasesColes, as a lessor has granted certain lessees concessionswith respect to contractual lease payments referred toas rent abatements. Rent abatements have not had amaterial impact on financial performance in FY20.Coles has continued to be supported by a dedicated teamof external experts as we complete the review. Remediationto affected current and former team members commencedin June 2020 and, at the date of this report, this process is DRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PMFinancial reporting impactsImpairment of non-financial assets (including goodwill)Forecast future cash flows used to support assets and cashgenerating units (CGUs) have been updated to reflect thebest estimate of future impacts of the COVID-19 pandemicon income and expenses. These impacts did not result inany impairments during the year.Furthermore, as at the reporting date, the Group’s freeholdproprieties are not considered to be significantly impactedby the ongoing effects of COVID-19 as these assets areexpected to maintain a steady yield in a low interest rateenvironment.Equity accounted investment in associates and joint venturesOn 22 March 2020, the Australian Federal and Stategovernments announced restrictions for ‘non-essential’businesses, forcing the closure of pubs, clubs, bars andrestaurants across all States and Territories.These restrictions impacted Queensland Venue Co. PtyLtd (QVC), in which Coles has a 50% joint venture interest,through the closure of hotel venues.Under the terms of the joint venture, Coles’ joint venturepartner Australian Venue Co. (AVC) is economicallyexposed to the operations and performance of the hotelsbusiness. Coles’ economic rights under the joint ventureare limited to the retail liquor business which has not beenadversely impacted by COVID-19. Consequently, there areno implications for the carrying value of Coles’ investmentClassification of COVID-19 as a significant itemWhile COVID-19 significantly impacted Coles’ financial performance during the reporting period, the ability toFollowing the announcement in February 2020, the FairWork Ombudsman (FWO) commenced an investigation separate and reliably measure the impacts from underlyingbusiness performance is limited. Furthermore, thepandemic has impacted our operations such that manyof the additional measures introduced to address andmitigate the risks of COVID-19 during the reporting periodare likely to form part of business as usual activities for theforeseeable future. On this basis, the impacts of COVID-19have not been presented as a significant item in the FY20Financial Report.Impact of AASB 16 LeasesThe Group applied AASB 16 for the first time in this reportingperiod. The impact of the adoption of AASB 16 on theGroup’s FY20 Statement of Profit or Loss is set out below: PRE-AASB 16FY20$MAASB 16IMPACT$MSTATUTORYFY20$MEBIT1,3873751,762Financing costs(44)(399)(443)Profit before tax1,343(24)1,319Income tax expense(348)7(341)Profit after income tax995(17)978 Under AASB 16, operating lease expenses are no longerrecognised. Depreciation of the right-of-use assetsand financing costs associated with lease liabilities arerecognised in the Statement of Profit or Loss. The applicationof AASB 16 resulted in a favourable impact to Group EBITof $375 million due to the depreciation charge associatednearing its conclusion. Coles Group Limited 2020 Annual Report39into the subject matter of the announcement. Coles hashad ongoing communications with the FWO since then.In May 2020, Coles was notified that a class actionproceeding had been filed in the Federal Court of Australiain relation to payment of Coles managers employed insupermarkets. Coles is defending the proceeding. Asthe court proceeding is at an early stage, the potentialoutcome and total costs associated with this matter areuncertain as at the date of this report.Non-IFRS informationThis report contains IFRS and non-IFRS financial information.IFRS financial information is financial information that ispresented in accordance with all relevant accountingstandards. Retail or non-IFRS financial information isfinancial information that is not defined or specified underany relevant accounting standards and may not bedirectly comparable with other companies’ information.Retail information is presented to enable an understandingof comparable business performance by excluding theimpacts of certain items that do not impact both thecurrent and comparative reporting period (for example,the impact of AASB 16 and significant items). Retail resultsare also presented using a retail reporting period to ensurethe current year’s results are prepared for a period that iscomparable to the prior year’s results.Both statutory and retail results for FY20 have been preparedon a 52 week basis, beginning on 1 July 2019 and ending on28 June 2020. FY19 statutory results reflect a 52 week and1 day reporting period, while FY19 retail results reflect a 52week reporting period.The table below provides further details relating to thestatutory and retail reporting periods: STATUTORY (IFRS)RETAIL (NON-IFRS)FY20FY19FY20FY19Reportingperiod1 Jul –28 Jun1 Jul –30 Jun1 Jul –28 Jun25 Jun –23 JunNumberof days364 days365 days364 days364 daysNumberof weeks52 weeks52 weeks1 day52 weeks52 weeks Any non-IFRS financial information included in this reporthas been labelled to differentiate it from statutory or IFRSfinancial information. Non-IFRS measures are used bymanagement to assess and monitor business performanceat the Group and segment level and should be consideredin addition to, and not as a substitute for, IFRS information.Non-IFRS information is not subject to audit or review.Forward-looking statementsThis report contains forward-looking statements in relationto the Group, including statements regarding the Group’sintent, belief, goals, objectives, initiatives, commitments orcurrent expectations with respect to the Group’s businessand operations, market conditions, results of operationsand financial conditions, and risk management practices.Forward-looking statements can generally be identified bythe use of words such as ‘forecast’, ‘estimate’, ‘plan’, ‘will’,‘anticipate’, ‘may’, ‘believe’, ‘should’, ‘expect’, ‘intend’,‘outlook’, ‘guidance’ and other similar expressions.These forward-looking statements are based on theGroup’s good-faith assumptions as to the financial, market,risk, regulatory and other relevant environments that willexist and affect the Group’s business and operations in thefuture. The Group does not give any assurance that theassumptions will prove to be correct. The forward-lookingstatements involve known and unknown risks, uncertaintiesand assumptions and other important factors, many ofwhich are beyond the reasonable control of the Group,that could cause the actual results, performances orachievements of the Group to be materially different fromfuture results, performances or achievements expressed orimplied by the statements.Readers are cautioned not to place undue reliance onforward-looking statements. Forward-looking statementsin this report speak only as at the date of issue. Except asrequired by applicable laws or regulations, the Group doesnot undertake any obligation to publicly update or reviseany of the forward-looking statements or to advise of anychange in assumptions on which any such statement isbased. Past performance cannot be relied on as a guideto future performance.Earnings per share and dividendsEarnings per share (EPS) decreased to 73.3 cents, a 9.3%decrease from the prior year. FY20FY19Profit for the period fromcontinuing operations ($M)9781,078Weighted average number ofordinary shares for basic anddiluted EPS (shares, million)1,3341,334Basic and diluted EPS (cents)73.380.8Basic and diluted EPS, excludingsignificant items (cents)70.167.5 The Board has determined a fully franked final dividend of27.5 cents per share (cps). CPSFRANKEDAMOUNTPER SECURITYFY20Interim dividend30.0 cents30.0 centsFinal dividend27.5 cents27.5 centsFY19Interim dividendnilnilFinal dividend24.0 cents24.0 centsSpecial dividend11.5 cents11.5 centsTotal dividend35.5 cents35.5 cents Coles Group Limited 2020 Annual Report40DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PM DRAFT 21COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PM Balance sheetA summary of key balance sheet accounts for the Group: $M28 JUNE202030 JUNE2019CHANGEAssetsCash and cash equivalents9929405.5%Trade and other receivables43436020.6%Inventories2,1661,96510.2%Property, plant and equipment4,1274,1190.2%Right-of-use assets7,660–n/m1Intangible assets1,5971,5413.6%Deferred tax assets849365132.6%Other5244877.6%Total assets18,3499,77787.7%LiabilitiesTrade and other payables3,7373,38010.6%Provisions1,3331,341(0.6%)Interest-bearing liabilities1,3541,460(7.3%)Lease liabilities9,083–n/m1Other227239(5.0%)Total liabilities15,7346,420145.1%Net assets2,6153,357(22.1%) 1 n/m denotes not meaningful.Coles opened its new Coles supermarket and Liquorland store at Ormeau Village in July 2019. The supermarket is part of an investment of more than $120 million byColes across the Gold Coast since 2016, including new and refurbished supermarkets at Ormeau Village, Australia Fair, Mudgeeraba, Southport Park, Coomera CityCentre, Coomera Westfield, Pimpama and Palm Beach.Coles Group Limited 2020 Annual Report41Cash and cash equivalents increased to $992 million largelydriven by increased trading activity in the last week of thefinancial year and the timing of trade payables settlementsrelative to the same time last year.The uplift in Trade and other receivables to $434 millionreflects increased supplier and other trading relatedbalances owing to the Group from higher sales, particularlyin the final quarter of the year.Inventories increased to $2,166 million primarily in responseto increased trading activity across Supermarkets andLiquor. A legislative change relating to the recognition ofduties and taxes on tobacco stock has also contributed tothe increase in inventories during the year.The application of AASB 16 from 1 July 2019 resulted in asignificant increase in Deferred tax assets to $849 millionattributable to the deferred tax impact associated with theimplementation of AASB 16 during the year (refer to Impactof AASB 16 Leases).The increase in Other assets to $524 million is predominantlyattributable to an increase in income tax receivable. Themovement in this balance reflects a timing difference in thesettlement of tax balances driven by the Group’s exit fromthe Wesfarmers tax consolidated group in the prior year.Trade and other payables increased to $3,737 million, largelydriven by elevated inventory holdings to support COVID-19related demand towards the end of the year.Other liabilities have reduced to $227 million, with the netmovement reflecting an uplift in gift card liabilities fromlower redemptions offset by a reduction in lease relatedobligations which have been reclassified to lease liabilitiesas part of the transition to AASB 16.Capital managementInterest-bearing liabilities reflect external borrowings anddebt capital funding commitments. During the year, Colesissued $600 million of fixed rate Australian dollar mediumterm notes (Notes), comprising $300 million of seven-yearNotes and $300 million of 10-year Notes. The proceeds fromthese issuances, along with surplus cash, was used to paydown term debt.As at 28 June 2020, Coles’ average debt maturity was 5.6years, with undrawn facilities of $2,182 million. Borrowingcosts for the year were $32 million and averagedapproximately 2.13% per annum. Coles is committed todiversifying funding sources and extending its debt maturityprofile over time.The lease-adjusted leverage ratio at the reporting datewas 3.1x with current published credit ratings of BBB+ withStandard & Poor’s and Baa1 with Moody’s.Impact of AASB 16 LeasesThe application of AASB 16 impacted the following items inthe Balance Sheet on 1 July 2019:• recognition of right-of-use assets: $7,481 million• recognition of lease liabilities: $8,856 million• increase in deferred tax assets: $356 million• elimination of lease related provisions recognised underprevious lease accounting: $188 millionThe net impact to retained earnings on 1 July 2019 was adecrease of $831 million.Set out below are the carrying amounts of recognised right-of-use assets and movements during the period: PROPERTYLEASES$MNONPROPERTYLEASES$MTOTAL$MAs at 1 July 20197,3391427,481Additions11,024161,040Depreciation expense(822)(39)(861)At 28 June 20207,5411197,660 Set out below are the carrying amounts of recognised lease liabilities and movements during the period: $MAs at 1 July 20198,856Additions11,073Accretion of interest399Payments(1,245)At 28 June 20209,083 1 Includes reasonably certain options, remeasurements and new leases, net of leases terminated.Coles Group Limited 2020 Annual Report42DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PMCash flowSummary cash flows of the Group $MFY20FY19CHANGECash flows from operating activitiesReceipts from customers39,97141,126(2.8%)Receipt from Viva Energy–137n/m1Payments to suppliers and employees(36,486)(38,665)(5.6%)Interest paid(37)(33)12.1%Interest component of lease payments(399)–n/m1Interest received7475.0%Income tax paid(504)(294)71.4%Net cash flows from operating activities2,5522,27512.2%Net cash flows used in investing activities(658)(280)135.0%Net cash flows used in financing activities(1,842)(1,611)14.3%Net increase in cash and cash equivalents52384(86.5%) 1 n/m denotes not meaningful.The application of AASB 16 has necessitated thereclassification of lease related payments in the cashflow statement during FY20. Specifically, operating lease expenses which were included in payments to suppliersand employers in the prior year, have been reclassifiedbetween interest paid and financing costs. The impact ofthis is a reclassification of net cash outflows from operatingactivities to financing activities to align with the accountingrequirements of the new standard. As FY19 balances havenot been restated, this reduces comparability against theprior year.property sales during the year. Included in FY19 net cash flowswere proceeds associated with the sale of Spirit Hotels and thedisposal of Kmart, Target and Officeworks (KTO) to Wesfarmersas part of Coles’ demerger from Wesfarmers Limited.Net cash flows from operating activities increased to$2,552 million. The increase reflects the uplift associatedwith the net reclassification of lease related paymentsto cash flows from financing activities, partially offsetby an increase in cash tax paid. In FY19, Coles exited theNet cash flows used in financing activities increased to$1,842 million reflecting the net repayment of externalborrowings during the year, the principal component oflease payments and dividends paid to shareholders. FY19cash flows also reflected the net settlement of capital andfunding balances with Wesfarmers as part of the demerger. Wesfarmers tax consolidated group which brought forwardthe settling of all tax related balances resulting in a lowernet tax cash outflow in the prior year. The movementin operating cash flows for the year also reflects a netreduction in Express associated with the transition to acommission agent arrangement under the terms of theNew Alliance Agreement.Net cash flows used in investing activities increased to$658 million reflecting investment in the Group’s annualcapital program, partly offset by the proceeds from Coles Group Limited 2020 Annual Report43 Segment overview$MFY20FY19CHANGESales revenue32,99330,9936.5%EBIT1,6181,19135.9%EBIT margin (%)14.93.8106bpsRetail (non-IFRS)2$MFY20FY19CHANGESales revenue32,99330,8906.8%EBITDA1,8791,7358.3%EBIT31,3101,18310.7%Gross margin (%)25.124.830bps1Cost of doing business (CODB) (%)(21.1)(20.9)(16bps)1EBIT margin (%)14.03.814bpsOperating metrics (non-IFRS)FY20(52 WEEKS)2H20(25 WEEKS)1H20(27 WEEKS)Comparable sales growth (%)5.910.02.0Customer satisfaction4 (%)87.185.988.3Inflation excl. tobacco and fresh (%)1.52.60.4Sales per square metre5 (MAT $/sqm)17,54717,54716,800 1 Changes are calculated on an absolute percentage basis to more precisely reflect the movement.2 Refer to Non-IFRS Information section for a comparison of statutory (IFRS) and retail (non-IFRS) results.3 Retail EBIT excludes the impact of AASB 16 Leases in FY20.4 Based on Tell Coles data. See glossary for explanation of Tell Coles.5 Sales per square metre is on a moving annual total (MAT), or exit rate calculated on a rolling 12 months of data basis.SupermarketsHighlightsStatutory sales revenue increased 6.5% to $32,993 milliondriven by range reviews providing a more tailored offerfor customers, trusted value campaigns to lower the costof breakfast, lunch and dinner, and execution of Coles’tailored store format strategy. Collectible campaignsincluding Little Shop 2 and Spiegelau glassware alsocontributed to sales revenue growth during the year.Trading increased significantly in the later stages of the thirdquarter as customers began pantry stocking in advance ofCOVID-19 social distancing measures being introduced. Theassociated transition to in-home consumption supportedelevated trade through to the end of the year.On a retail basis, sales increased by 6.8% to $32,993 million,with comparable sales growth of 5.9%, the 51st consecutivequarter of positive comparative sales growth.Own Brand sales grew by 9.7% in FY20, achieving in excessof $10 billion sales for the year and launching over 1,850 newproducts. Range innovations, including the Coles Kitchenand Coles Finest convenience ranges, have provided quickand healthy meal solutions to support in-home consumptiongrowth. Trusted value was delivered through the ‘Helpinglower the cost of…’ campaign, increased Own Brand salesand more than 1,500 products on everyday low prices.Coles recorded inflation excluding tobacco and freshof 1.5% for the year, with total inflation of 2.4%. Total costinflation was largely a result of increases in tobacco due toexcise, dairy following milk cost price increases earlier in theyear and vegetables, with some lines impacted by weatherconditions such as drought, bushfires and storms. Inflationwas higher in the fourth quarter driven by cost inflation,Coles Group Limited 2020 Annual Report44DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PMlower availability and mix impacts. Reduced availability ofkey lines led to lower promotional activity, with increasedat-home eating trends also driving a shift to premium products during the quarter.Coles OnlineColes Online sales revenue grew by 18.1% to $1,301 million Supermarkets continued to optimise the store network aspart of its tailored store format strategy with 70 renewalscompleted in FY20.Coles now has 29 Format A stores focused on convenienceand a premium fresh food offer; 33 Format C stores focusedon driving operational efficiencies; and four Coles Localstores focused on tailored local offerings, including thefirst in New South Wales at Rose Bay which opened in May.Coles’ dedicated convenience space was also successfullydelivered to approximately 150 stores during the year. Gross margin increased 30bps to 25.1% driven by strategicsourcing benefits, a more efficient supply chain from therealisation of Smarter Selling initiatives, and favourable mixas a result of COVID-19 customer purchasing, partly offsetthrough the expansion of contactless Click & Collect, andunattended delivery was also introduced allowing ColesOnline to service customers more quickly. by investment in value. CODB as a percentage of sales increased by 16bps to 21.1%driven by higher store expenses, including incrementalcosts to support team member and customer safety duringCOVID-19. Partly offsetting this increase were savings fromSmarter Selling initiatives relating to a more streamlinedStore Support Centre, enhanced end-to-end processes instore driven by data and technology related solutions, andenergy and waste management reductions including thereplacement of fluorescent lights with more efficient, lowermaintenance LED lighting in stores.Statutory EBIT increased by 35.9% to $1,618 million driven bygrowth in sales, gross margin progression, cost managementcommenced on the Melbourne site.Coles Financial ServicesThrough Coles Financial Services, the Group offers creditcards and personal loans in partnership with Citigroup toapproximately 330,000 customer accounts and home,car and landlord insurance in partnership with InsuranceAustralia Group (IAG) to approximately 350,000 policyholders. During the year, Coles launched pet insurance inpartnership with Guild Insurance. initiatives and an uplift in EBIT from the implementation ofAASB 16 in FY20.On a retail basis, which excludes the impacts of AASB 16,EBIT increased by 10.7%.in FY20, after services were temporarily disrupted in Marchand April during the COVID-19 pandemic. As governmentrestrictions were introduced, the Coles Online PriorityService was established to support customers most inneed, with service progressively restored for all customersthroughout April and May.Coles Online invested heavily throughout the year inexpanding capacity of Home Delivery, largely throughextended pick-times and the recruitment of additionaldrivers. Click & Collect capacity increased, predominantlyLeases were also signed during the year for the two Ocadosites in Sydney and Melbourne, with construction havingSupermarkets(continued)Coles Group Limited 2020 Annual Report45Above: Michael and Rob at the new Coles Local which opened in Glenferrie Road, Hawthorn during FY20, offering customers a tailored local range.Below: Brenda has worked at Coles for more than 53 years and in June 2020 she received an Order of Australia medal for services to the Malvern community.Coles Group Limited 2020 Annual Report46 DRAFT 1COL1634_AnnualReport_September 23, 2020 7:52 PMd4a DRAFT 21COL1634_AnnualReport_d31a – Rnd 16CopySeptember 23, 2020 7:52 PM Coles launched 115 new liquor products during FY20, including the Somma range of alcoholic mineral water (top left), Native Spirits range of gins (top right),an extended range of our craft beer Tinnies (middle left) and a new Vintage Cellars wine range (middle right). Winemakers Julian Langworthy and AndrewBretherton from Deep Woods Estate in Western Australia’s Margaret River region with a bottle of award-winning Deep Woods Single Vintage Cabernet Malbecwhich is exclusive to Coles Liquor (bottom). Julian Langworthy was named Vintage Cellars Winemaker of the Year in 2019.Coles Group Limited 2020 Annual Report47 Segment overview$MFY20FY19CHANGESales revenue3,3083,2053.2%EBIT1381333.8%EBIT margin (%)14.24.22bpsRetail (non-IFRS)2$MFY20FY19CHANGESales revenue33,3083,0638.0%EBITDA149153(2.6%)EBIT4120120–Gross margin (%)21.622.3(72bps)1Cost of doing business (CODB) (%)(17.9)(18.4)44bps1EBIT margin (%)13.63.9(28bps)Operating metrics (non-IFRS)FY20(52 WEEKS)2H20(25 WEEKS)1H20(27 WEEKS)Comparable sales growth (%)7.313.91.5Sales per square metre5 (MAT $/sqm)15,43815,43814,370 1 Changes are calculated on an absolute percentage basis to more precisely reflect the movement.2 Refer to Non-IFRS Information section for a comparison of statutory (IFRS) and retail (non-IFRS) results.3 Retail sales revenue for FY19 excludes hotel sales.4 Retail EBIT excludes the impact of AASB 16 Leases in FY20 and hotels in FY19.5 Sales per square metre is a moving annual total (MAT) or exit rate calculated on a rolling 12 months of data basis.HighlightsLiquor sales revenue was $3,308 million on a statutory basis,an increase of 3.2% from the prior year.On a retail basis sales revenue was $3,308 million, an increaseof 8.0% for the year with comparable sales growth of 7.3%.The First Choice Liquor Market conversions continue toperform strongly with the format now rolled out to 61% ofthe First Choice network. ELB sales grew by 7.5% for the year,with 74 new ELB lines launched in FY20.Liquor experienced a trading uplift driven by COVID-19in the latter part of the year from increased in-homeconsumption following government-imposed restrictions onhotels, pubs, clubs and licensed venue operators. A planto simplify and refocus the Liquor operating model wasaccelerated by COVID-19, providing an opportunity to fasttrack clearance activity for slow moving and deleted stock.The closure of on-premise venues as a result of COVID-19also provided the opportunity to support and engagewith local suppliers, with over 300 new ‘local’ product lineslaunched during the fourth quarter.Targeted investment in online platforms, capacity andcustomer experience across all three banners supportedstrong online sales growth of 40% for the year. For the fourthquarter, online sales increased in excess of 70% driven, inpart, by changing customer preferences towards onlineshopping alternatives during COVID-19.Optimisation of the store network continued with 20 newstores opened and 20 stores closed, resulting in a total of910 Liquor stores at the end of the year.Gross margin decreased by 72bps to 21.6% from customersmoving towards more value-oriented products andongoing clearance and promotional activities associatedwith tailored range reviews.Statutory EBIT increased by 3.8% to $138 million driven byincreased sales and the implementation of AASB 16 inFY20, partly offset by margin deterioration and incrementaloperating costs associated with COVID-19.On a retail basis, which excludes the impacts of AASB 16,EBIT was flat for the year.LiquorColes Group Limited 2020 Annual Report48DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PM Segment overview$MFY20FY19CHANGESales revenue1,1073,978(72.2%)EBIT3346(28.3%)EBIT margin (%)13.01.2180bpsRetail (non-IFRS)2$MFY20FY19CHANGESales revenue31,1071,0485.6%EBITDA1276(84.2%)EBIT4(16)50(132.0%)Gross margin (%)53.761.4n/m5Cost of doing business (CODB) (%)(55.2)(56.7)153bps1EBIT margin (%)1(1.5)4.7n/m5Operating metrics (non-IFRS)FY20(52 WEEKS)2H20(25 WEEKS)1H20(27 WEEKS)Comparable convenience store (c-store) sales growth (%)4.66.42.9Weekly fuel volumes (million litres)59.554.264.4Fuel volume growth (%)(2.3)(9.0)3.3Comparable fuel volume growth (%)(2.5)(9.9)4.2 1 Changes are calculated on an absolute number / percentage basis tomore precisely reflect the movement.2 Refer to Non-IFRS Information section for a comparison of statutory (IFRS)and retail (non-IFRS) results.3 Retail sales revenue for FY19 excludes fuel sales.4 Retail EBIT excludes the impact of AASB 16 Leases in FY20.5 n/m denotes not meaningful.HighlightsStatutory sales revenue for Express decreased by 72.2% to$1,107 million driven by lower fuel volumes and the move to acommission agent model under the New Alliance Agreementeffective 1 March 2019. In accordance with the terms of theNew Alliance Agreement, Express no longer recognises fuelsales revenue; however, it is entitled to commission income(recognised in ‘other operating revenue’) from fuel sold atAlliance sites.On a retail basis, sales revenue increased by 5.6% to $1,107million largely driven by COVID-19 related pantry stockingand strong basket size growth in the latter part of the yearwhich more than offset lower foot traffic in-store followinggovernment stay-at-home directives across the country.Express continued to invest in the customer offer in FY20,completing the implementation of fast-lane fridges andcommencing a network wide roll out of new self-servicecoffee machines in the fourth quarter. During the year, sevennew sites were opened and eight sites closed, taking the totalnetwork to 713 sites.Weekly fuel volumes averaged 59.5 million litres in FY20, adecline of 2.3% for the year. Prior to COVID-19, fuel volumeswere trending positively compared to the prior year, peakingat approximately 70 million litres per week during the thirdquarter. Average weekly fuel volumes declined significantly inthe early part of the fourth quarter, with less road traffic due togovernment stay-at-home directives. The trajectory improvedthroughout the fourth quarter as restrictions began to ease inparts of the country.CODB as a percentage of sales decreased by 153bps to 55.2%reflecting cost control and efficiency measures throughoutthe year.Statutory EBIT decreased by 28.3% to $33 million for the yeardriven by the decline in fuel volumes and c-store margin, partlyoffset by an EBIT uplift from the implementation of AASB 16.On a retail basis, Express recorded an EBIT loss of $16 millionfor the year driven by the decline in fuel volumes and, in part,c-store margin deterioration as customers shifted towardstop-up and non-food categories in the latter part of the year.Retail results exclude the impacts of AASB 16 and fuel sales.ExpressColes Group Limited 2020 Annual Report49Other Other includes corporate costs, Coles’ 50% share of flybuysnet profit, the net gain generated by the Group’s propertyportfolio and self-insurance provisions. In aggregate,this resulted in a $27 million net loss for the year driven bycorporate costs, partly offset by earnings from propertyrelated activities.Coles’ share of net loss for its 50% equity interest in flybuyswas $6 million in FY20 (FY19: $5 million net profit).Glossary of termsAverage basket size: A measure of how much eachcustomer spends on average per transactionbps: Basis points. One basis point is equivalent to 0.01%Cash realisation: Calculated as operating cash flowexcluding interest and tax, divided by EBITDA (excludingsignificant items)CODB: Costs of doing business. These are expenses whichrelate to the operation of the business below gross profitand above EBITComparable sales: A measure which excludes stores thathave been opened or closed in the last 12 months andexcludes demonstrable impact on existing stores fromstore disruption as a result of store refurbishment or newstore openingsEBIT: Earnings before interest and taxEBITDA: Earnings before interest, tax, depreciation andamortisationEPS: Earnings per shareGross margin: The residual income remaining afterdeducting cost of goods sold, total loss and logistics fromsales, divided by sales revenueIFRS: International Financial Reporting StandardsLeverage ratio: Gross debt less cash at bank and ondeposit, divided by EBITDAMAT: Moving Annual Total. Sales per square metre iscalculated as sales divided by net selling area. Both salesand net selling area are based on a MAT, or exit ratecalculated on a rolling 12 months of data basisRetail calendar: A reporting calendar based on a definednumber of weeks, with the annual reporting periodending on the last Sunday in JuneSignificant items: Large gains, losses, income, expenditureor events that are not in the ordinary course of business.They typically arise from events that are not consideredpart of the core operations of the businessTell Coles: A post-shop customer satisfaction surveycompleted by over two million customers annually,through which Coles monitors customer satisfaction withservice, product availability, quality and priceTRIFR: Total Recordable Injury Frequency Rate. Thenumber of lost time injuries, medically treated injuriesand restricted duties injuries per million hours worked,calculated on a rolling 12-month basis. TRIFR includes allinjury types including musculoskeletal injuriesColes Group Limited 2020 Annual Report50DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PMDespite the many challenges we have faced, we have strongplans in place to continue to deliver on this vision and our strategy to Inspire Customers through best value food anddrink solutions to make lives easier, deliver Smarter Sellingthrough efficiency and pace of change, and Win Togetherwith our team members, suppliers and communities.that were delayed in FY20 due to COVID-19. Technologyand automation will continue to play an important role inimproving our supply chain, and our anytime, anywhereoffering. Our partnership with Witron to construct two ambientautomated distribution centres in Queensland and NewSouth Wales is well underway. Construction has commencedin Queensland and we expect construction to begin on theColes’ priorities for the year ahead have not changed. Withmany of our customers facing tough times, value has never been more important, and an increasingly diverse customer base requires a tailored offer to ensure we meet their needs.We will provide trusted value by lowering prices, supportedto deliver an online fulfilment centre in Melbourne (whereconstruction has already begun) and Sydney, will provide by marketing efforts to lower the cost of breakfast, lunch anddinner. We will also accelerate Own Brand innovation acrossall price tiers and deliver range reviews at pace on the backof the successes we achieved in FY20. We also know that ourcustomers want convenience and are looking for healthierfood options. Coles is well positioned in these areas with ourconvenience range already rolled out to approximately 150supermarkets. Growth in online shopping is also expected toaccelerate as existing and new online customers appreciatethe convenience of anytime, anywhere shopping. Coles’export business remains a growth opportunity.industry leading capability in online fulfilment.During FY20, an operational review of the Liquor strategywas completed. This is a multi-year strategy with theobjective of creating a more relevant and accessible offerfor our customers, delivered through improved service. Itwill be implemented over the three horizons of ‘Simplify andrefocus’, ‘Differentiate’ and ‘Grow’.Having made a strong start to the Smarter Selling program inFY20, Coles retains its $1 billion cost-out target to be achievedbetween FY20 and FY23. In FY21, Coles will continue to focuson realising cost-out opportunities, however the timing willbe dictated, in part, by COVID-19. Coles’ optimised storenetwork and formats are already transforming the makeup and performance of our extensive store network withWhile COVID-19 continues to have an impact on our teammembers, suppliers and the communities we serve, and theenvironment in which we operate remains highly uncertain,Coles is well placed to take advantage of opportunities asthey arise.Supporting our team members, suppliers and thecommunities in which we operate has never been moreimportant than it is today. In the year ahead, we will continueto embed wellbeing and safety in Coles’ DNA by continuingto focus on reducing TRIFR and building the capabilities ofall team members to look after their mental wellbeing andto create a mentally healthy workplace.Coles has continued to experience elevated sales and incurincremental COVID-19 costs in the early part of FY21. Thereis significant variation between states, and store locationswithin states, as a result of the ongoing impact of COVID-19restrictions around Australia. The extent and duration ofthese impacts will depend upon a number of factors as weproactively manage the unfolding COVID-19 situation. plans to renew approximately 65 stores in FY21, and to openapproximately 15 to 20 new stores, including five storesNew South Wales site in FY21. Our partnership with OcadoLooking tothe futureOver the past year, Coles has made good progress ondelivering on our vision to ‘Become the most trusted retailerin Australia and grow long-term shareholder value’.To provide customers with fast, convenient service, Coles expanded itsClick & Collect Concierge offer. Northlakes Coles Online Team ManagerJai delivers groceries for Leah and her son, William, in Darwin.Coles Group Limited 2020 Annual Report52DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PMDuring the year, Coles has continued to identify and managerisks in accordance with the Coles Risk ManagementFramework. The design of this Framework is based on ISO31000:2018 Risk management – Guidelines (‘ISO 31000’),which provides an internationally recognised set ofprinciples and guidelines for managing risks in organisations.Further information about our Risk Management Frameworkis available in Coles’ Corporate Governance Statement.Through application of the Coles Risk ManagementFramework, we have identified material strategic,operational, and financial risks which could adversely affectthe achievement of our future financial prospects. Each ofthese material risks is described below along with our plansto manage them. Although the risks have been describedindividually, there is a high level of interdependencybetween them, such that an increased exposure for onematerial risk can drive elevated levels of exposure in otherareas of our risk profile. In addition to these material risks,our performance may also be impacted by risks that applygenerally to Australian businesses and the retail industry, aswell as by the emergence of new material risks not reportedbelow.COVID-19There are high levels of uncertainty with regard to how theCOVID-19 pandemic will evolve both internationally anddomestically, along with corresponding responses fromgovernments, organisations, customers and the broadercommunity. This makes the impact of the COVID-19pandemic for Coles, its business and its customers highlyuncertain. Key areas of uncertainty include, but arenot limited to: evolution of the virus, rates of infection,government regulatory and policy response (includinggovernment-imposed shutdowns of sectors of the economy,border closures, and variations in restrictions between statesand countries), resilience of both domestic and internationalsupply chains, the treatment and immunisation timeline,and quality of available healthcare.The emergence of the COVID-19 pandemic has created itsown set of significant risks and impacts to Coles, and hasalso heightened Coles’ existing material risk profile. Thetable below summarises the most significant risks associatedwith COVID-19, and how these link to the broader set ofmaterial risks.Risk managementIn response to the COVID-19 pandemic, we implemented a large number ofmeasures to keep our customers and team members safe, such as sneezeguards in supermarkets.Coles Group Limited 2020 Annual Report53 Risk DescriptionRelevant existing material risk(s)Operational disruptionRisk of significant and/or prolonged disruptions in the supply chain,store and online operations which can impact on our ability to serveour customers and the community. This can be driven by governmentimposed restrictions including border closures, industrial relations disputes,surges in customer demand, inability to access critical third parties whomwe rely on to deliver our strategy and operations, and loss of critical digitalapplications and platforms due to cyber attacks.• Pandemic• Competition, changing consumerbehaviour and digital disruption• Security of supply• Industrial relations• Third party management• Technology, resilience, data andcyber securityCustomer behaviourFailure to adequately respond to changes in customer expectations asa result of COVID-19 including increased focus on safety measures andincreased reliance and demand on online shopping and digital channels.Any future government changes in restrictions may also lead to furthersurges in customer purchases of fresh food, homecare, grocery andpantry items, or declines in fuel volumes.• Pandemic• Competition, changing consumerbehaviour and digital disruption• Strategy and transformation delivery• Security of supplyProgram executionPauses or delays in the execution of areas within our strategy andtransformation program due to disruptions brought about by the COVID-19pandemic. These include re-allocation of program resources to focus onresponse activities, disruptions in supply of capital inputs and services,and to critical third parties whom we rely on to deliver our strategic andtransformational programs of work.• Pandemic• Security of supply• Strategy and transformation delivery• Third party managementHealth and safetyAdverse impacts to team member health and wellbeing (including mentalhealth), the potential for clusters of COVID-19 infections at sites, and loss ofkey personnel due to infection.• Pandemic• Health and safetyRegulatory changesFailure to appropriately respond to enhanced and rapidly moving regulatoryrequirements brought on by COVID-19, including for health and safety.• Pandemic• Health and safety• Legal and regulatoryCyber threatsHeightened cyber security threats including remote access scamstargeting team members working from home, payments fraud andbusiness email compromise, phishing scams, and abuse of videoconferencing applications.• Pandemic• Technology, resilience, data andcyber securityFinancial costs and lossesRisk of higher input costs, additional operational costs associated withresponding to the COVID-19 pandemic, reduction in sales and margins,increased risk of fraud, and working capital implications.• Pandemic• Financial, treasury and insurance COVID-19 has also adversely impacted the local and global economy but the severity, duration and extent of impactin each affected jurisdiction is uncertain. We anticipate that the evolving nature of the COVID-19 pandemic and thechanging geopolitical and macro-economic environment (including impacts to population growth within Australia), willdrive continual changes to Coles’ material and emerging risks during the next financial year. We will therefore continue tomonitor and respond to further developments as required.Coles Group Limited 2020 Annual Report54DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PM DRAFT 21COL1634_AnnualReport_d31a – Rnd 16CopySeptember 23, 2020 7:52 PM Existing material strategic, operational and financial risks for Coles are set out below. Strategic risksRisk DescriptionMitigationsPandemicIf Coles does not monitor and respondto the evolution of the COVID-19pandemic, or that of any futurepandemic, then it can expose usto material financial loss, legal andregulatory action, people, healthand safety issues, operational risks,environmental and sustainability risksand/or reputational damage.Coles continues to manage the evolution of the COVID-19 pandemic inaccordance with our Coles Group Response Policy and Program which setsout the governance arrangements, accountabilities, and processes for crisismanagement and business continuity, and our Coles SafetyCARE Systemwhich is the safety management system that provides a framework for Coles tolook after the health, safety and wellbeing of our team members, customers,contractors, suppliers and visitors.Our response is led by our Executive-level Response Leaders who aresupported by the Group Response Manager. Business continuity functionalleads are assigned to manage dedicated streams of work to identify, prepareand respond to emerging risks and issues across the Group. Critical responsedecisions are discussed and approved by Coles’ Executive Leadership Teamand elevated to the Board, where required.Business continuity plans are in place for critical functions and activitiesacross our operations including merchandising, supply chain and store andonline operations. Our plans include consideration of people, resources,physical sites, information technology and digital requirements, and criticalthird parties required to continue to operate and serve our customers andcommunity. These plans have been invoked when required during ourresponse and continue to be refined given the evolving nature of, and ourcontinued exposure to, the pandemic.This includes ongoing assessment of risks, contingency plans and resourcingarrangements.Macro-economic environmentA downturn in the local and globaleconomy, slump in consumerconfidence, and financial marketvolatility may expose Coles to higherinput costs, supply chain disruptions,credit risk, financial loss, and restrictedaccess to liquidity.Assumptions about macro-economic conditions and monitoring of macroeconomic factors are built into the development of our strategic programs ofwork, and our forward-looking business planning.We continue to adapt our offer so it is consistent with customer needs andexecute our Smarter Selling program with the objective of reducing costs.We also continuously monitor progress of execution against our strategy andtransformational programs of work.We have a Board approved Treasury Policy which governs the managementof our treasury risks, including liquidity, funding, interest rates, foreign currency,the use of derivatives and counterparty risk. These risks are managed day-today by our Group Treasury function.Competition, changing consumer behaviour and digital disruptionIf Coles fails to respond to competitivepressures and changing customerbehaviours and expectations, it couldresult in loss of market share and,ultimately, adverse margin impacts,reduced customer retention andimpact to share price or value.Key programs to respond to these risks and build on opportunities areembedded in the implementation of our strategy. Coles regularly monitorscustomer sentiment, best practice global retailers, local and internationallearnings, and customer insights and research, so we can quickly respond tochanges in customer behaviours.In response to COVID-19 we launched initiatives which were focused ondelivering our products and services safely to our customers. This included ashifting focus to contactless Home Delivery and Click & Collect, CommunityHour for vulnerable and elderly customers, emergency services and health Coles Group Limited 2020 Annual Report55 Competition, changing consumer behaviour and digital disruption (continued)care workers, and delivery of the ‘speedy shopper’ initiative including use ofthe Coles Product Finder App to help customers plan their shop ahead of time.We continue to focus on driving an enhanced digital customer experiencethrough our digital catalogue and the new coles.com.au platform and haveinvested in new data analytics tools and platforms to give suppliers andcategory decision makers fast and detailed insights across products, stores,geographies and sales channels.Strategy and transformation deliveryInability to properly executeand deliver our strategy andtransformational program couldresult in loss of market share, andvariability in Coles’ earnings.Delivery of our strategy and transformation program is determined by theeffective implementation of each of the three pillars of our strategy.Furthermore, elements of our strategy are supported by third-party strategicpartnerships including Witron (automated distribution centres), Ocado(enhanced online capability) and Microsoft (cloud data platform, andenterprise resource planning platform for selected business units).We also have joint ventures with Wesfarmers (flybuys) and AVC (QVC), and analliance with Viva (Coles Express). During the financial year, Coles acquiredcertain assets and liabilities of Jewel, an Australian ready-meals facility. Inaddition, Coles may undertake future acquisitions and divestments, and enterinto other third-party relationships, so we can more effectively execute ourstrategy.We have governance structures and processes in place to oversee, manageand execute our strategy and transformational programs of work. Projectsand programs are regularly reviewed in detail to monitor progress of programdelivery, costs and benefits, and allocation of resources. We have maintainedprogress in the execution of our programs with Witron and Ocado during theCOVID-19 pandemic, though our joint venture with AVC and Viva Alliancehave been adversely impacted, with the temporary closure of hotel venues(which does not have any direct economic impact on Coles) and reducedfuel volumes.Climate changeClimate change presents an evolvingset of risks and opportunities for Coles,and has the potential to contributeto and increase the exposure ofother material risks. These includeincreased frequency/intensity ofextreme weather events and chronicclimate changes which can disruptour operations and compromisethe safety of our team members,customers, supply chain and thefood we sell; changes to governmentpolicy, law and regulation, which canresult in increased costs to operateand potential for litigation; and failureto meet expectations of stakeholdersresulting in reputational damage.Coles has undertaken a gap analysis against the G20’s Financial Stability BoardTask Force on Climate-related Financial Disclosures (TCFD) to understand andimprove its alignment to the TCFD recommended disclosures. A roadmaphas been developed and action commenced to improve Coles’ response toclimate change and its transition to a lower carbon economy.During FY20, we worked with external climate change specialists to furtherassess our climate change risks and opportunities. Additional information onthese risks and opportunities is set out in the Climate Change section.Further, in the case of extreme weather events, we have business continuityprocesses for sourcing and delivering goods to stores. To reduce our impact onthe environment, we have an Energy Strategy that includes our approach toenergy purchasing, monitoring and management. Through the Coles NurtureFund, we are supporting suppliers with grants to help them adapt to climatechange as well as to mitigate their impact. Coles Group Limited 2020 Annual Report56 DRAFT 1COL1634_AnnualReport_d4aSeptember 23, 2020 7:52 PM DRAFT 21COL1634_AnnualReport_d31a – Rnd 16CopySeptember 23, 2020 7:52 PM Operational risksRisk DescriptionMitigationsIndustrial relationsAs we execute our strategy, workforcechanges may lead to industrial actionand/or disruptions to operations,which can result in increased costs,litigation and financial impactsfrom reputational damage. Theemergence of COVID-19 along withplanned changes in our supply chainoperations, has heightened ourexposure to this risk.Coles has in place a dedicated Employee Relations function which isresponsible for monitoring and responding to industrial relations risks and issues.Key activities include implementation of appropriate enterprise bargainingand employee relations strategies; maintaining and building strong workingrelationships with unions and industry organisations; and constructively liaisingwith our team members, third-party suppliers and transport and logisticservice providers.The renegotiation of collective bargaining agreements is proactivelymanaged and business continuity plans are in place to mitigate disruption tooperations if industrial action occurs.Security of supplyPotential disruption to the supplyof goods for resale and servicesrequired to deliver our coreoperations can occur due to extremeweather events and changes inclimate, changes in domestic andinternational government policy andregulation, and disruptions causedby the evolving COVID-19 pandemic,including suspension of production,domestic and international borderclosures, and restricted access tothe workforce our suppliers rely onto produce goods. Supply chaindisruptions can result in an inabilityto supply to customers, loss of marketshare, price volatility and increasedcosts.We have business continuity plans to manage the supply chain and deliveryof goods to stores during extreme weather and business disruptive events.These continuity plans were successfully invoked in response to the bushfiresand demand surges experienced during the early stages of Coles’ COVID-19response. Our COVID-19 response includes sourcing alternative supplyarrangements, scaling up production and distribution of substitute goods(potentially simplifying range to aid production efficiency), and removal ofpromotions to suppress demand of impacted lines and customer limits.We continue to analyse Coles’ supply chain resilience across a number of keyfood categories, including for carbon footprint and water scarcity. The resultswill be used to contain possible future disruptions to supply. Medium andlonger term international and domestic supply security risks and mitigationscontinue to be assessed as the external environment evolves.Health and safetyThe safety of our team, customers,third parties and contractors isparamount to Coles. We employ anextensive and diverse work force,including third parties, with highvolumes of people interactionsdaily. This brings risk of fatality, lifethreatening injuries or transmission ofdisease to team members, customers,suppliers, contractors or visitors, dueto unsafe work practices, accidents orincidents.Our detailed Health, Safety, Environment and Injury Management system(SafetyCARE) is supported by a team of experienced safety professionalsthroughout our network. SafetyCARE’s performance is measured through arange of indicators and the effectiveness of the system is assessed through averification program. A rolling five-year Safety and Wellbeing Plan focuses onthe three pillars of Safety leadership and culture, Critical risk reduction, andMind your health.The health and safety of our customers and team members is the focal pointof our response to the COVID-19 pandemic. Coles adheres to the hygienepractices recommended by the Australian Government through Safe WorkAustralia and based on information from the World Health Organization,the Australian Department of Health, state and territory governments anddepartments of health and other applicable regulatory bodies. A largenumber of measures have been implemented including programs to keep ourcustomers and team members safe incorporating social distancing measures,sneeze guards, sanitiser, masks, additional cleaning and security, immediateescalation and reporting protocols, and the implementation of large-scalemental health and wellbeing programs for all of our team members. Coles Group Limited 2020 Annual Report57 Product and food safetyProduct and food safety and quality iscritical for Coles. Serious illness, injuryor death are the most severe potentialconsequences from compromisedproduct or food safety. Loss incustomer trust, reputational damage,loss in sales and market share,regulatory exposure, and potentiallitigation could also occur.Coles has a food safety governance program in place which is overseen by anexperienced technical team. The program comprises targeted policies andprocedures, including well established food recall and withdrawal processes,specific supplier requirements for different food categories (for examplechilled versus ambient) and a supporting assurance program to ensure keycontrols are operating and effective.We also have a Product Safety Program which covers non-food products, andwork closely with our suppliers to ensure compliance with relevant mandatorystandards to meet consumer guarantees under the Australian Consumer Law.Our Product and Food Safety Committee oversees continuous improvement offood and product safety risks and issues across Coles, including any presentedby COVID-19.Food and plastic wasteWe recognise that food and plasticwaste negatively impacts theenvironment, economy and society.There is a potential for significantreputational risk if Coles does notreduce food and plastic waste inline with consumer, shareholder andgovernment expectations.Coles is committed to working with the Australian Packaging CovenantOrganisation. We have a waste management strategy in place which includesprograms to divert waste from landfill, including partnerships with SecondBite,Foodbank and local farmers. In-store training and awareness programs are inplace to increase the effectiveness of our waste management program. Softplastics recycling through REDcycle is available in our supermarkets and thevolumes of material submitted for recycling continue to increase.We continue to look for new opportunities to reduce waste, including workingwith our suppliers, partnering with our communities to use food we do not sell,and trialling new solutions to better process our in-store waste.Third party managementAn inability to successfully manageand leverage our strategic third-partyrelationships, or a critical failure ofa key supplier or service provider,may expose Coles to risks related tocompromised safety and quality,misalignment with ethical andsustainability objectives, disruptionsto supply or operations, unrealisedbenefits, and legal and regulatoryexposure.Coles has due diligence processes in place to assess the adequacy andsuitability of key suppliers, service providers and strategic partners inaccordance with our requirements. We monitor and manage quality andperformance of key suppliers and strategic third parties throughout theirengagement with Coles. Defined service level and key performance indicatorsare in place for key supply contracts. Risks are managed via contractualprotections.During FY20, we delivered the source to pay process for goods and serviceproviders (goods not for resale) via implementation of the SAP Aribatechnology platform. Third party management (goods not for resale) isgoverned by the Third Party Management Policy and includes risk assessmentrequirements for the sourcing process. Plans for FY21 include the continueduplift and embedding of contract management and supplier managementrequirements for goods not for resale engagements.Legal and regulatoryThe diversity of our operationsnecessitates compliance withextensive legislative requirements atall levels of government, includingcorporations law, competition andconsumer law, health and safety,employee relations, product and foodsafety, environment, council by-laws,privacy and bio-security.Coles has in place a Compliance Framework, which is based on AS ISO19600:2015 Compliance Management Systems – Guidelines, and which setsout the standards, requirements and accountability for managing regulatorycompliance obligations across the Group. Coles has targeted controls inplace across the various areas of compliance, including policies, procedures,training and system controls. The Framework is subject to assurance toensure controls are in operation and operating effectively. We also maintainrelationships with regulators and industry bodies and actively monitor newand impending legislative and policy changes. Coles Group Limited 2020 Annual Report58DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PM Legal and regulatory (continued)Non-compliance with key lawsand regulations, could exposeColes to loss of license to operate,substantial financial penalties,reputational damage, a deteriorationin relationships with regulators, andadditional regulatory changes whichmay adversely impact the executionof our strategy and result in increasedcost to operate. Furthermore, if Colesis a party to litigation, it can involvereputational damage, financial costs,and high investment of Companyresources and time.Our legal teams work in partnership with our compliance teams to monitorand manage legal issues, matters, claims or disputes. We are supported bypre-agreed panel arrangements with external legal firms and undertake riskanalysis on any potential litigation claims to understand loss potential.Ethical sourcingFailure to source product or conductour business in a manner thatcomplies with our Coles EthicalSourcing Policy and relevant legalrequirements across Australia and thecountries we source from, can result inimpact to worker safety, wellbeing orliving conditions, material reputationaldamage, loss in consumer confidenceand market share, regulator finesand penalties, and adverse financialperformance.Our Ethical Sourcing Policy and supplier requirements are based oninternationally recognised standards and establish the minimum standards forall suppliers.Coles’ Ethical Sourcing Program takes a risk-based approach which definesthe level of due diligence and monitoring that applies to suppliers basedon risk exposure and includes a requirement for ethical audits of selectedsuppliers. The program covers Supermarkets Own Brand and fresh producesuppliers. During the past financial year, we extended program coverage toinclude Own Brand suppliers to Express, and began preparation to implementthe program for Own Brand suppliers to Liquor, as well as Goods Not For Resalesuppliers.Coles’ Human Rights Steering Committee oversees ethical sourcinggovernance including human rights risks, issues and improvement actionsacross the business. The role of the committee extends to reviewing theapplication of relevant legislative and regulatory requirements concerninghuman rights, such as the reporting requirement under the Commonwealth’sModern Slavery Act 2018. In March 2020 the Board endorsed our Human RightsStrategy which focuses on systems and processes to prevent, mitigate andremedy actual or potential adverse human rights impacts.Coles allocates dedicated resources to the delivery of our Human RightsStrategy and Ethical Sourcing Program. This includes an in-house certifiedsocial compliance auditor (certified by the Association of Professional SocialCompliance Auditors) to manage the ethical audit program. Coles’ whistleblower hotline and dedicated supply chain wages and conditions hotlineenable reporting of unethical, illegal, fraudulent or undesirable conduct. Coles Group Limited 2020 Annual Report59 Information technology, resilience, data and cybersecurityA failure or disruption to ourinformation technology applicationsand infrastructure, including a cybersecurity event, could impede theprocessing of customer transactions orlimit our ability to procure or distributestock for our stores. Furthermore,our technology and data-richenvironment also exposes us to therisk of unintentional or unauthorisedaccess to confidential, financial, orprivate information, which may resultin loss in consumer confidence, lossin market share, regulator fines andpenalties, and reputational damage.We have a rolling five-year technology strategy and continuously monitor ourtechnology operations. Our service management function is responsible forresponding to incidents, and we actively manage technology changes toreduce the risk of system instability, especially during peak trading periods.Information technology recovery plans are in place should an informationtechnology disruption occur.Our privacy and digital security policies, procedures, governance forums, andeducation and awareness programs help to assess and manage ongoingdata, privacy and cyber security threats. We regularly test and review ourinformation technology infrastructure, systems, and processes to assesssecurity threats and the adequacy of controls. We also benchmark securitycapabilities and identify opportunities for improvement, and are committed tothe ongoing delivery of Coles’ cyber security program to continually improveour people, process, and technology controls.In response to COVID-19, we regularly assess new and increased cyber-crimeattack vectors, have deployed resources and invested in areas of threat whichhave arisen, and continue to be vigilant as the threat evolves. Financial risksRisk DescriptionMitigationsFinancial, treasury and insuranceThe availability of funding andmanagement of capital and liquidityare important requirements to fundour business operations and growth.In addition, we are exposed tomaterial adverse fluctuations ininterest rates, foreign exchange ratesand commodity movements whichcould impact business profitability.We may also be exposed to financialloss from accidents, natural disastersand other events.Our Group Treasury function is responsible for managing our cash fundingposition and supporting the management of interest rate and foreigncurrency risks. Our Treasury Policies are approved by the Board, and governthe management of our financial risks, including liquidity, interest rates,foreign currency and commodity risks and the use of other derivatives. Furtherinformation is included in Note 4.2 Financial Risk Management of the FinancialReport.Insurance is a tool to protect our customers, team members and the Groupagainst financial loss, where applicable. In some cases, we choose toself-insure a significant proportion of the risk. This means that, in the eventof an incident, the cost is covered from internal premiums charged to thebusiness or the losses are absorbed. Our insurance function is responsible formanaging both self-insurance and the purchase of external insurance wherewe determine this is prudent. We monitor our self-insured risks and have activeprograms to help us pre-empt and mitigate losses. We engage an externalactuary to determine the self-insurance liabilities recognised in the Statementof Financial Position.COVID-19 has impacted Coles significantly in the second half of the financialyear and in the Operating and Financial Review we have documented thetrading and financial reporting impacts of the pandemic. Coles Group Limited 2020 Annual Report60 DRAFT 1 COL1634_We also prepared a detailed roadmap and action planSecretariat and Corporate Affairs.AnnualReport_to enhance our climate change response and supportOur climate change agenda and program are coordinatedd4a September 23, 2020 7:52 PMour transition to a lower-carbon economy. The roadmap,by a Climate Change Subcommittee which oversees Coles’Copy September 23, 2020 7:52 PMGroup wide identification and response to sustainabilityrisks, including climate change. It is chaired by the ChiefProperty and Export Officer, a member of the ExecutiveLeadership Team reporting to the Chief Executive Officer.Its standing members comprise management fromfunctions with key sustainability responsibilities includingRisk and Compliance, Sustainability, Own Brand, CompanyDuring the reporting period we engaged an externalconsultant to complete a gap analysis of Coles’ previousreporting against the TCFD recommendations. While theanalysis found we are partially aligned with the majorityof the TCFD recommended disclosures, we are continuingto refine and enhance our disclosures as we develop andembed our climate change strategy.which was endorsed by the Board, also highlights the keymilestones we need to meet to enable more comprehensiveclimate change responses and disclosures.Our first priority was the requirement for a climate change riskassessment, noting climate risk has already been identifiedas a material business risk as part of the risk identificationprocesses defined within Coles’ Risk ManagementFramework. During the year, we worked with external climatechange specialists to further assess our climate change risksand opportunities. The assessment considered three climatescenarios to prompt innovative thinking, as described belowin the Risk Management section.The next steps in developing our climate change strategywill be assessing our corporate strategy against differentclimate scenarios and releasing new greenhouse gasemission reduction targets for our operational emissions.The strategy will also reference and respond to the risksalready identified.Governanceclimate change approach and reports to the SustainabilitySteering Committee and its Chair. The Subcommitteeis chaired by the General Manager Sustainability andProperty Services and includes senior leaders from keyfunctions within Coles, including Finance, Strategy, Riskand Compliance, and Sustainability. The Subcommitteealso reviews the application of relevant legislative andregulatory requirements concerning climate change.Our approach to climate change governancewill continue to develop as we embed roles andresponsibilities throughout the organisation, recognisingthat responsibilities for managing and mitigating climatechange risks are organisation wide.Strategy and approachThe Board oversees the effectiveness of Coles’ environment,sustainability and governance policies and retains ultimateoversight of material environmental and sustainability risksand opportunities, including those related to climate change.During FY20, we continued to develop a comprehensiveclimate change strategy in line with the recommendedTCFD disclosures.Our approach to climate change is captured underthe Win Together pillar of our corporate strategy, whichincorporates Coles’ response to climate change risk andopportunities, and has three key focus areas: DRAFT 21 COL1634_AnnualReport_d31a – Rnd 16 As one of Australia’s largest companies, we know we havea responsibility to minimise our environmental footprint. Ourbusiness is also impacted by climate change, and we needto adapt to be able to respond to extreme weather eventsand maintain security of food supply to sustainably feed allAustralians.The Audit and Risk Committee assists the Board in fulfillingits responsibilities. The Committee evaluates the adequacyand effectiveness of Coles’ identification and managementof environmental and social sustainability risks as well asreporting of those risks. The Committee receives reportsfrom management on new and emerging sources of riskand the controls and mitigation measures managementhas put in place to address these risks.We support the TCFD, and information in this sectionresponds to the four thematic areas against which the TCFD recommendations for climate-related disclosures are structured.The Group’s Sustainability Steering Committee, amanagement committee, is responsible for overseeingClimate changeColes Group Limited 2020 Annual Report61• Sustainable communities – supporting Australianfarmers, suppliers, team members and the communitiesin which we live and work• Sustainable products – sourcing quality products in anethical and responsible way• Sustainable environmental practices – minimisingenvironmental impacts across our operations, includingclimate change impactsInitiatives that address and support this component of ourcorporate strategy include:• Our Energy Strategy which guides our approach toenergy purchasing and management and maintainingsecurity of energy supply. In FY20, we were the first majorAustralian retailer to commit to buying renewable energythrough a power purchase agreement. The 10-yearagreement is in place to purchase power from three solarplants in New South Wales with the projects expected toprovide 10% of Coles’ national power needs. We expectthe solar plants will be operational in FY21.• Our approach to refrigeration management whichincludes investing in transcritical CO2 refrigerants – naturalgas compounds that have little or no impact on the ozonelayer and do not contribute to greenhouse gas emissions.• Environmental improvements in stores by enhancingsustainability features on the store design blueprint suchas doors on freezers, optimising lighting and installingnew gas and water meters.• Business continuity planning for sourcing and deliveringgoods to stores in the occurrence of extreme weatherevents, such as floods, storms and bushfires.• Research into supply chain resilience with theCommonwealth Scientific and Industrial ResearchOrganisation (CSIRO), where we have investigated thesecurity of key products in our fresh food supply chain.• Opportunities for new product development to supportcustomers seeking products with lower environmentalimpacts. We understand that minimising environmentalimpacts of food production is an important issue formany customers, and we have responded by increasingour range of plant-based products including introducingNature’s Kitchen, a range of plant-based products.• The Coles Nurture Fund which provides support tosuppliers through grants for climate change adaptationand mitigation initiatives.• Participation in the Australian Beef SustainabilityFramework, an initiative of the Red Meat Advisory Councilmanaged by Meat and Livestock Australia. We considerthe framework the most appropriate way to addressclimate and environmental issues facing the beefindustry (such as emissions reduction and deforestation)from a national and industry-wide perspective.We will continue to identify opportunities to mitigate riskand respond to opportunities.Construction has commenced on the development of a solar farm outside Junee in regional New South Wales. It is one of three solar farms from which Coleswill source 10% of its national power needs. The other two solar farms will be located outside the regional centres of Wagga Wagga and Corowa. All three solarfarms are being developed and constructed by Metka EGN Australia.Coles Group Limited 2020 Annual Report62DRAFT 1 COL1634_AnnualReport_d4a September 23, 2020 7:52 PM DRAFT 21COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PMphysical risks (acute and chronic). Risk managementThrough the application of the Coles Risk ManagementFramework, climate change has been identified as amaterial business risk to the Group.During FY20, we further assessed our climate changerisks and opportunities including the potential for climatechange risks to contribute to or increase other materialrisks. The qualitative risk assessment applied the riskmanagement processes defined within Coles’ RiskManagement Framework and used the following threeclimate scenarios to prompt innovative thinking:1. stated policies – Where governments deliver on currentpolicies already in place which result in approximately3.2°C warming above pre-industrial levels2. ambitious global action – Where there is activemovement towards the goals set in the Paris Agreementto keep ‘global average temperature to well below2°C, or preferably to 1.5°C above pre-industrial levels’3. runaway climate change – Where there is no limitplaced on carbon emissions and warming is set toreach 4°C above pre-industrial levels.The risk assessment included interviews and workshops withstakeholders across the Group including Property, Export,Supply Chain, Product, Own Brand, Coles Liquor, ColesExpress and Procurement.Analysis of the risk exposure considered financial,reputational, health and safety, legal and regulatory, andoperational consequences over the next 10 years. Theassessment also identified associated metrics and targetsused to monitor the management of risk and opportunitiesand evaluated risk exposure against Coles’ climate changerisk appetite.Our most significant climate-related risks, mitigants andopportunities are presented in the following table, alongwith our approach to managing them. The risks identifiedhave been grouped into the two major categories ofclimate-related risks identified by the TCFD: (1) risks relatedto the transition to a lower-carbon economy and (2) Transition risksRisk and impactMitigants and opportunitiesReputationalWe recognise our customers and community expectstrong and responsible action from Coles on climatechange. We know we have a responsibility to minimiseour impact on the environment through our operations.Failure to take action on climate change would harm theenvironment and Coles’ reputation.We have in place teams and processes to monitor,understand and respond to the concerns andexpectations of our key stakeholders and society morebroadly. A roadmap has been developed and action hascommenced to enhance our climate change responseand transition to a lower-carbon economy.Changing regulatory requirementsWe take our regulatory obligations seriously and managenon-compliance with regulatory requirements as a risk,with supporting risk appetite statements set by the Board.New and evolving climate-related regulations mayresult in breaches and/or increased implementation oroperational cost to deliver compliance.Coles has a Compliance Framework based on ASISO 19600:2015 Compliance Management Systems –Guidelines which sets out the standards, requirementsand accountability for managing regulatory complianceobligations across the Group.Carbon pricingChanges in policy affecting the cost of carbon may resultin increased business costs including energy, transport,water, goods, materials and services.Coles consistently looks for opportunities to improveoperational efficiency including energy efficiency.Strategies to source energy from renewable sourcesand reduce energy usage have been developedfor store operations, transport and refrigeration.Incremental improvements are implemented throughasset replacement regimes. This is supported by internalengineering standards which incorporate technologicaladvances and changing operating conditions.Export market growthChanging policies in existing and future markets mayimpact growth due to the introduction and/or expansionof trading taxes, barriers on high emissions and waterintensive products, and bans on non-recyclablepackaging. Growth may also be further impacted byconsumer transition to lower carbon lifestyles.Export remains an area of growth for Coles. Businessplanning considers future market conditions andconsumer preferences, which are monitored routinely.Coles mitigates exposures to macro-economic conditionsand regulatory requirements through diversification ofproducts and markets. Coles Group Limited 2020 Annual Report63Tom and Vickie Tyson from Lachlan Valley Grazing near Condobolin in New South Wales received a Nurture Fund grant to install solar panels to power new,efficient irrigation equipment. The project, completed in FY20, has minimised the business’ carbon footprint, reduced its reliance on electricity and enabled thefamily to produce grass-fed beef for 12 months of the year.Coles Group Limited 2020 Annual Report64DRAFT 1 COL1634_ AnnualReport_ d4a September 23, 2020 7:52 PMDRAFT 21 COL1634_AnnualReport_d31a – Rnd 16Copy September 23, 2020 7:52 PM Physical risksRisk and impactMitigants and opportunitiesHealth and safetyThe frequency and intensity of extreme weather events,as well as changes in weather patterns, will create moreinstances in which conditions may become unsafe for ourteam members, contractors and customers.The Coles Health, Safety, Environment and Injury Managementsystem (SafetyCARE) factors in the acute (for examplebushfires) and chronic impacts (for example heat fatigue) ofclimate change. The system is integrated with emergencymanagement (our response to physical threats or eventsas coordinated by the Health and Safety team), and ColesGroup Response Policy and Program, which sets out thegovernance arrangements, accountabilities and processesfor crisis management and business continuity. Learnings fromincidents and events, and opportunities for improvement,are identified and incorporated into our safety, emergencymanagement and response plans and processes.Supply chain disruptionOur ability to move, procure and sell products and serviceswill be impacted by climate change both domesticallyand internationally. Key impacts include decreasedagricultural productivity due to extreme temperatureshifts; droughts and other extreme weather events;disrupted transport routes; and disrupted suppliers’operations due to extreme weather events.We have business continuity plans to manage the supplychain and delivery of goods to stores during extremeweather and business disruptive events. We continue toanalyse Coles’ supply chain resilience across a numberof key food categories, including for carbon footprint andwater scarcity. The results will be used to contain possiblefuture disruptions to supply.Food safetyChanges in growing and operating conditions mayaffect the persistence and occurrence of pests anddiseases and, as a result, increase food safety risks duringproduction, handling and processing in manufacturingplants, distribution and storage along the value chain.Coles’ Food Safety program, which includes recall andmonitoring processes, is updated to adapt to changingconditions. The program aligns with externally accreditedprograms such as Safe Quality Food (SQF) and BritishRetail Consortium’s Global Standard for Food Safety. Wework with suppliers, industry and regulators to understandand anticipate new and incremental risks.Asset integrity and continuity of operationsChanging weather conditions will result in an increasein physical damage to assets; access interruption;prolonged power outages; decreased equipmentreliability and efficiencies; and essential services.Emergency response plans and business continuityplans are in place to mitigate potential disruptions andstore design specifications consider future conditions toimprove their resilience in extreme conditions. We also conducted an assessment with respect to potentialimpacts on Coles’ financial statements which found that,while the risks identified to date may result in financialimpacts such as increased costs and loss of income for futurefinancial years, none are considered to give rise to materialfinancial reporting impacts for the FY20 financial year.Work will continue in FY21 to further explore opportunitiesto manage the risks identified in the climate change riskassessment referenced above and determine how thesewill be addressed in our climate change strategy.Metrics and targetsWe met our 2020 greenhouse gas emissions target, whichwas to reduce greenhouse gas emissions by 30% from a 2009baseline, four years early in 2016 through a focus on reducingemissions particularly emissions associated with refrigeration.While our target has been met, we continue to invest inenergy efficiency and greenhouse gas reduction programsincluding our energy strategy, refrigeration managementand opportunities in store.Work is well progressed on developing new greenhouse gasemission targets.We measure and report on Scope 1 and Scope 2 greenhousegas emissions in line with the National Greenhouse andEnergy Reporting Scheme (NGERS) requirements. NGERSrequires companies to report annually each October. Assuch, metrics, including greenhouse gas metrics, will beincluded in our FY20 Sustainability Report.Coles Group Limited 2020 Annual Report65Overview Operating and Financial Review Financial Report Shareholder informationBoardof DirectorsColes Group Limited 2020 Annual Report66Board of Directors:Biographical detailsJames Graham AMBE (Chem) (Hons), MBA, FIEAust EngExec, FTSE, FAICD, SF FinChairman and Non-executive Director, Chairman of theNomination Committee and Member of the People andCulture CommitteeAge: 72James Graham has extensive investment, corporate andgovernance experience, including as a Non-executiveDirector of Wesfarmers Limited for 20 years, prior to hisretirement in July 2018. James is Chairman of GreshamPartners Limited, having founded the Gresham PartnersGroup in 1985. From 2001 to 2009, he was a Director ofRabobank Australia Limited, initially as Deputy Chairmanand then Chairman, responsible for the Bank’s operationsin Australia and New Zealand. He was also Chairman of theDarling Harbour Authority between 1989 and 1995. Jameswas made a member of the Order of Australia in 2008.Directorships of listed entities, current and recent(last three years):Director of Wesfarmers Limited (May 1998 to July 2018)Steven CainMEng (1st)Managing Director and CEOAge: 55Steven Cain has over 20 years of experience in Australianand international retail. Steven was previously ChiefExecutive Officer of Supermarkets and Convenienceat Metcash Limited. He was Chief Executive of CarltonCommunications plc, a FTSE 100 media group company,and Operating Director and Portfolio Company Chairmanat Pacific Equity Partners, a private equity firm. He wasGroup Marketing Director, Store Development Director andGrocery Trading Director of Asda Stores Ltd (UK) during itsturnaround and has held roles at UK retail group Kingfisherplc, and Bain & Company. Steven was previously theManaging Director of Food, Liquor and Fuel at Coles Myerand was an advisor to Wesfarmers Limited on its takeover ofthe Coles Group in 2007.David CheesewrightBSc Mathematics and Sports Science (1st)Non-executive Director, Member of the NominationCommittee and the People and Culture CommitteeAge: 58David Cheesewright retired in early 2018 as Presidentand Chief Executive Officer of Walmart International,which comprises Walmart’s operations outside the UnitedStates, including more than 6,200 stores and over a millionassociates in 27 countries. David was also responsible forWalmart’s global sourcing operations and offices aroundthe world. He was previously President and CEO of WalmartEMEA (Europe, Middle East and Africa), CEO WalmartCanada, and COO Asda. David’s other prior roles includea range of key positions with Mars Confectionery in the UKacross manufacturing, marketing, sales and logistics. Davidis also a previous board member of Walmex (WalmartMexico), Chinese online grocery business Yihaodian, SouthAfrican retailer and distributor Massmart, The Retail Councilof Canada and ECR Europe and is a prior Chair of WalmartCanada Bank and Gazeley Holdings (UK). David currentlysits on the Deans Advisory Board of the Smith Business Schooland is a Non-executive Director of Rapha Racing (UK).Jacqueline ChowMBA, BSc (Hons), GAICDNon-executive Director, Member of the NominationCommittee and the Audit and Risk CommitteeAge: 48Jacqueline Chow is a Non-executive Director of nibHoldings Limited and a Senior Advisor at McKinseyConsulting RTS, advising clients across industrial, retail,telecommunications, financial services and consumersectors on performance transformation projects. She is alsoa Director of the Australia-Israel Chamber of Commerceof New South Wales. From 2016 to June 2019, Jacquelinewas a Director of Fisher & Paykel Appliances. Jacquelinepreviously held senior management positions withFonterra Co-operative Group, one of the world’s largestdairy product producers and exporters, including ChiefOperating Officer, Global Consumer and Food Service.Prior to that, she was in senior management with CampbellArnott’s and Kellogg Company. She was also ProgrammeSteering Group Director, Ministry for Primary Industries, NZand Deputy Chair, Global Dairy Platform Inc.Directorships of listed entities, current and recent(last three years):Director of nib Holdings Limited (since April 2018)Coles Group Limited 2020 Annual Report67Abi ClelandMBA, BCom/BANon-executive Director, Member of the NominationCommittee and the People and Culture CommitteeAge: 46Abi Cleland is a Director of Computershare Limited, SydneyAirport Corporation Limited and Orora Limited. Abi is alsoa Director of Swimming Australia. Abi’s previous boardappointments include Australian Independent BusinessMedia, Chairman of Planwise Australia and membership ofthe advisory committee of Lazard PE Fund 2. From 2012 to2017, Abi established and ran an advisory and managementbusiness, Absolute Partners, focusing on strategy, mergersand acquisitions and disruption. Before that, she held seniormanagement roles at KordaMentha’s 333, where she wasManaging Director, and at ANZ, Incitec Pivot Limited andAmcor Limited.Directorships of listed entities, current and recent(last three years):Director of Computershare Limited (since February 2018);Director of Sydney Airport Corporation Limited (since April2018); Director of Orora Limited (since February 2014);Director of BWX Limited (August 2017 to December 2017)Richard FreudensteinLLB (Hons), BEcNon-executive Director, Chairman of the People andCulture Committee and Member of the NominationCommitteeAge: 55Richard Freudenstein is a Director of REA Group Limited(since 2006), including as Chairman from 2007 to 2012. He isalso currently a board member of Cricket Australia, DeputyChancellor of the University of Sydney and a memberof the Advisory Board of start-up artificial intelligencesoftware company Afiniti. Richard was previously ChiefExecutive Officer of Foxtel (2011 to 2016), Chief ExecutiveOfficer of The Australian and News Digital Media at NewsLtd (2006 to 2010), and Chief Operating Officer at BritishSky Broadcasting plc (2000 to 2006). His previous boardpositions include Ten Network Holdings (2015 to 2016), Foxtel(2009 to 2011) and ESPN STAR Sports ESS (2009 to 2012).Directorships of listed entities, current and recent(last three years):Director of REA Group Limited (since November 2006);Director of Astro Malaysia Holdings Berhad (September2016 to August 2019)Wendy StopsBAppSc (Information Technology), GAICDNon-executive Director, Member of the NominationCommittee and the Audit and Risk CommitteeAge: 59Wendy Stops is a Director of Commonwealth Bank ofAustralia Limited. She is also a Director of Fitted for Work,a Council member at the University of Melbourne, Chairof the Advisory Board for the Melbourne Business School’sCentre for Business Analytics and a member of theAdvisory Committee to the Digital Technology Taskforceof the Department of Prime Minister and Cabinet. Wendywas previously a senior management executive in theinformation technology and consulting sectors, including16 years with Accenture in various senior managementpositions in Australia, Asia Pacific and globally. Her previousboard experience includes Altium Limited, AccentureSoftware Solutions Australia and Diversiti. She is currently amember of Chief Executive Women.Directorships of listed entities, current and recent(last three years):Director of Commonwealth Bank of Australia Limited (sinceMarch 2015); Director of Altium Limited (February 2018 toNovember 2019)Zlatko TodorcevskiMBA, BComNon-executive Director, Chairman of the Audit and RiskCommittee and Member of the Nomination CommitteeAge: 52Zlatko Todorcevski is a Director of The Star EntertainmentGroup Ltd and was appointed as Chief Executive Officerand Managing Director of Boral Limited, effective 1 July2020. Zlatko’s previous appointments include Deputy Chairand Director of Adelaide Brighton Ltd, having served asChairman from May 2018 to May 2019. Zlatko was also aCouncil member of the University of Wollongong, Presidentof the Group of 100 and Chairman of the ASIC Accountingand Audit Standing Committee. Zlatko’s executive careerincluded four years as Chief Financial Officer of BramblesLtd and from 2009 to 2012 as Chief Financial Officer of OilSearch Ltd. From 1986 to 2009, he held various senior rolesat BHP, including Chief Financial Officer of Energy based inLondon and Houston.Directorships of listed entities, current and recent(last three years):Director of Adelaide Brighton Limited (March 2017 to June2020); Director of Star Entertainment Group (since May2018); Executive Director of Boral Limited since July 202068Directors’ReportColes Group Limited 2020 Annual Report69The Directors present their report on the consolidated entity consisting of Coles Group Limited (‘Coles’ or ‘the Company’)and its controlled entities at the end of, or during, the financial year ended 28 June 2020 (‘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 7.6 Events after 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).DirectorsThe Directors in office during the financial year and up to the date of this report are: NAMEPOSITION HELDPERIOD AS A DIRECTORJames Graham AMChairman and Independent,Non-executive DirectorAppointed 19 November 2018Steven CainManaging Director andChief Executive OfficerAppointed Chief Executive Officer17 September 2018Appointed Managing Director2 November 2018David CheesewrightIndependent, Non-executive DirectorAppointed 19 November 2018Jacqueline ChowIndependent, Non-executive DirectorAppointed 19 November 2018Abi ClelandIndependent, Non-executive DirectorAppointed 19 November 2018Richard FreudensteinIndependent, Non-executive DirectorAppointed 19 November 2018Wendy StopsIndependent, Non-executive DirectorAppointed 19 November 2018Zlatko TodorcevskiIndependent, Non-executive DirectorAppointed 19 November 2018 The biographical details of the current Directors set out information about the Directors’ qualifications, experience, specialresponsibilities and other directorships.Company secretaryDaniella Pereira LLB (Hons), BADaniella Pereira was appointed the Company Secretary of Coles Group Limited on 19 November 2018. Daniella has anextensive career in legal, governance and company secretariat, including a 14-year career with ASX-listed industrialchemicals company Incitec Pivot Limited. Daniella began her career as a lawyer with Ashurst (formerly Blake Dawson).Directors’ ReportColes Group Limited 2020 Annual Report70Directors’ meetingsThe number of Directors’ meetings (including meetings of committees of Directors) and the number of meetings attendedby each of the current Directors of the Company during the financial year are listed below: DIRECTORBOARDAUDIT AND RISKCOMMITTEEPEOPLE AND CULTURECOMMITTEENOMINATIONCOMMITTEEHeldAttendedHeldAttendedHeldAttendedHeldAttendedJames Graham12125533Steven Cain1211*David Cheesewright12125433Jacqueline Chow12125533Abi Cleland12125533Richard Freudenstein12125533Wendy Stops1211*5533Zlatko Todorcevski12125533 * Mr Cain and Ms Stops were apologies for extraordinary meetings which were convened at short notice.Directors’ shareholdings in ColesDetails of Directors’ shareholdings in Coles as at the date of this Directors’ Report are shown in the table below. All Directorshave met the minimum shareholding requirement under the Board Charter. DIRECTORNUMBER OF SHARES HELD1James Graham500,188Steven Cain250,000David Cheesewright20,000Jacqueline Chow20,000Abi Cleland19,816Richard Freudenstein19,000Wendy Stops20,000Zlatko Todorcevski19,201 1 The number of shares held refers to shares held either directly or indirectly by Directors as at 18 August 2020. Refer to the Remuneration Report tables for totalshares held by Directors and their related parties directly, indirectly or beneficially as at 28 June 2020.2 As at 18 August 2020, Steven Cain also holds 85,057 Restricted Shares, 85,057 Performance Shares and 275,901 Performance Rights.Principal activitiesThe principal activities of Coles during the financial year were providing customers with everyday products, including freshfood, groceries, general merchandise, liquor, fuel and financial services through its store network and online platforms. Nosignificant changes have occurred in the nature of these activities during the financial year.State of affairsCessation of Wesfarmers substantial shareholdingOn 19 February 2020, Wesfarmers announced that it had sold 4.9% of the issued share capital of Coles. On 31 March 2020,Wesfarmers announced that it had sold a further 5.2% of the issued share capital of Coles. Following the sale, Wesfarmersretains a 4.9% interest in Coles. Coles and Wesfarmers continue to operate the flybuys joint venture, with both partiesretaining a 50.0% interest in the business.As a result of Wesfarmers’ interest falling below 10.0%, the Relationship Deed agreed between Coles and Wesfarmers atthe time of the demerger terminated and Wesfarmers no longer has the right to nominate a director to the Coles Board.Mr David Cheesewright who was previously nominated to the Coles Board by Wesfarmers, continues as a director on theColes Board. In light of Wesfarmers no longer being a substantial shareholder in Coles and Mr Cheesewright ceasing to bea nominee to the Coles Board by Wesfarmers, the Board has concluded that Mr Cheesewright is an independent director.Coles Group Limited 2020 Annual Report71Review and results of operationsA review of the operations of the Group during the financial year, the results of those operations and the Group’s financialposition are contained in the Operating and Financial Review (OFR).Business strategies and prospects for future financial yearsThe OFR sets out information on the business strategies and prospects for future financial years and refers to likelydevelopments in Coles’ operations and the expected results of those operations in future financial years. Information in theOFR is provided to enable shareholders to make an informed assessment about the business strategies and prospects forfuture financial years of the Group. Information that could give rise to likely material detriment to the Group, for example,information that is commercially sensitive, confidential or could give a third party a commercial advantage, has notbeen included. Other than the information set out in the OFR, information about other likely developments in the Group’soperations and the expected results of these operations in future financial years has not been included.Events after the reporting dateOn 18 August 2020, the Directors determined a final dividend of 27.5 cents per fully paid ordinary share to be paid on29 September 2020, fully franked at the corporate tax rate of 30%. The aggregate amount of the final dividend to be paidout of profits, but not recognised as a liability at 28 June 2020, is expected to be $367 million.DividendsDividends since Coles’ last Annual Report: TYPECENTS PERSHARETOTALAMOUNT$MFRANKEDPERCENTAGEDATE OF PAYMENTPaid during the year2019 final dividend24.0320100%26 September 20192019 special dividend11.5154100%26 September 20192020 interim dividend30.0399100%27 March 2020To be paid after end of year2020 final dividend27.5367*100%29 September 2020DEALT WITH IN THE FINANCIAL REPORT ASNOTE$MDividends paid3.3873Events after the reporting period7.6367* * Estimated final dividend payable, subject to variations in the number of shares up to the record date.Environmental regulationsThe activities of the Company are subject to a range of environmental regulations under the law of the Commonwealthof Australia and its states and territories. The Group is also subject to various state and local government food licensingrequirements, 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 officersThe 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 assuch officers to the extent permitted by law.In accordance with the Company’s Constitution, the Company has entered into a Deed of Indemnity, Insurance andAccess with each of the Company’s Directors, Company Secretary, Chief Financial Officer and certain executives. NoColes Group Limited 2020 Annual Report72Director or officer of the Company has received benefits under an indemnity from the Company during or since the endof the financial year.The Company has paid a premium in respect of a contract insuring current and former directors, company secretariesand executives of the Company and its subsidiaries against liability that they may incur as an officer of the Company orany of its subsidiaries, including liability for costs and expenses incurred by them in defending civil or criminal proceedingsinvolving them as such officers, with certain exceptions. It is a condition of the insurance contract that no details of thepremiums payable or the nature of the liabilities insured are disclosed.Indemnification of AuditorsPursuant to the terms of engagement Coles has with its auditors, Ernst & Young (EY), Coles has agreed to indemnify EY tothe extent permitted by law and professional regulations, against any losses, liabilities, costs or expenses incurred by EYwhere they arise out of or occur in relation to any negligent, wrongful or wilful act or omission by Coles. No payment hasbeen made to EY by Coles pursuant to this indemnity, either during or since the end of the financial year.Non-audit services and Auditor’s independenceDetails of the non-audit services undertaken by, and amounts paid to EY are detailed in Note 7.3 Auditor’s remunerationto 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 notcompromise, 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 andobjectivity of the Auditor; and• the non-audit services provided did not undermine the general principles relating to auditor independence as set outin APES 110 Code of Ethics for Professional Accountants as they did not involve reviewing or auditing the Auditor’s ownwork, acting in a management or decision making capacity of the Company, acting as an advocate of the Companyor jointly sharing risks or rewards.A copy of the Auditor’s Independence Declaration forms part of this report.Proceedings on behalf of ColesNo application has been made under section 237 of the Corporations Act 2001 (Cth) in respect of Coles, and there are noproceedings that a person has brought or intervened in on behalf of Coles under that section.RoundingThe 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 inFinancial/Directors’ Reports) Instrument 2016/191.Signed on behalf of the Board in accordance with a resolution of the Directors of the Company. James Graham AMSteven CainChairman18 August 2020Managing Director and Chief Executive Officer18 August 2020 Coles Group Limited 2020 Annual Report73Overview Operating and Financial Review Directors’ Report Financial Report Shareholder informationRemunerationReportColes Group Limited 2020 Annual Report74Letter to shareholders from theChair of the People and Culture CommitteeDear Shareholder,On behalf of the Board, I am pleased to present the FY20 Remuneration Report for Coles. The Remuneration Report providesinformation on the remuneration arrangements for our Key Management Personnel (KMP) which include the ManagingDirector and Chief Executive Officer (Managing Director and CEO), Other Executive KMP and Non-executive Directors ofthe Company.A year of progressHeading into FY20, Coles launched its refreshed strategy, ‘Winning in our Second Century’. The new strategy outlinedthe Company’s vision to ‘become the most trusted retailer in Australia and grow long-term shareholder value’. The Colesmanagement team led by Managing Director and CEO, Steven Cain, has delivered against many of the commitmentsmade to shareholders across FY20. In addition, Coles delivered a total shareholder return (TSR) of 31.7% placing it inthe top quartile of performance across both the ASX 50 and ASX 100. It is particularly commendable that these resultswere achieved amid some of the most challenging conditions in living memory, requiring the business to pivot at pace inresponse to bushfires, floods and COVID-19. Some of the achievements in the first year of delivering on the new strategyinclude:Inspire Customers: Coles continued to inspire our customers in FY20 and delivered trusted value through the ‘Helping lowerthe cost of…’ campaign. Although periodic disruptions to availability as a result of COVID-19 prevented the Companyfrom fully meeting the FY20 customer satisfaction target for STI purposes, it is notable that customer satisfaction improvedin all segments in Q4. Own Brand achieved more than $10 billion of sales, contributing 31.2% of Supermarkets sales inQ4, increasing by 9.7% for the year as more than 1,850 products were launched. Coles also introduced a dedicatedconvenience foods section across almost 150 supermarkets, with more than 240 new lines including the new Coles Kitchenrange from our recently acquired Jewel manufacturing facility in Sydney, supporting Coles’ ambition to become adestination for convenience and health.Smarter Selling: Cost savings in excess of $250 million were achieved through Smarter Selling initiatives. This was dueto enhanced logistics solutions for stores and distribution centres, improved labour productivity through integration ofoperations and supply chain teams, and measures to reduce loss in store.Win Together: Team member safety significantly improved across FY20 with the Total Recordable Injury Frequency Rateimproving by 18.3%. To help team members manage their own wellbeing in the face of the many challenges the yearpresented, we proactively provided team members with resources to look after their mental and physical health, as well asthat of their families. This focus on team members was reflected in the increased engagement score, improving by sevenpercentage points for the full year, alongside record participation. Coles continued to support our communities with theSecondBite Winter Appeal; $5.2 million raised for FightMND; and more than $6 million contributed to rural firefighters andbushfire relief.Outcomes for FY20This was the first year of operation under the new Coles remuneration framework for the Executive KMP as outlined inthe 2019 Annual Report. Under the framework each of the Executive KMP was aligned to the new short-term incentive(STI) design structure using individual balanced scorecards consisting of financial, strategic and non-financial metrics asoutlined in section 4.4.RemunerationReportColes Group Limited 2020 Annual Report75Company performance was strong against all financial metrics included in the Executive KMP STI for FY20. Group salesrevenue (adjusted retail basis) increased by 6.6% to $38,109 million; and for the first time in four years, Coles reportedearnings growth at a Group level, with earnings before interest and tax (EBIT) (pre AASB 16 and significant items) increasingby 4.7% to $1,387 million. It is important to note that revenue and earnings had both established a strongly upward trajectoryprior to the influence of COVID-19, which began to further accelerate sales growth during the third quarter. It is alsosignificant that the Company successfully managed the increased demand and operational challenges of COVID-19.Performance was also strong against strategic and non-financial metrics, which broadly included people, safety, customer,Smarter Selling and transformation projects that will underpin the long-term sustainability of our business. In evaluating theachievement against the balanced scorecard, the Board maintains the absolute discretion to ensure that remunerationoutcomes are appropriate in the context of the Company’s performance, our customer and team member experienceand shareholder expectations. For FY20, the Board considered the STI outcomes in the context of the unprecedentedevents the year presented. Section 4.4 covers the achievements in more detail and includes a summary of the Board’sapproach to determining the final STI payable for Executive KMP, considering the full year achievements in the context ofthe unique circumstances of FY20. The resulting impact was STI outcomes for the Executive KMP that ranged between 91.7%to 100% of the maximum STI opportunity. The Board believes this is a reasonable reflection of the significant achievementsdelivered by management against the commitments made to shareholders for FY20. 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 ExecutiveKMP STI awards will be deferred into equity for one year.An unprecedented timeAs an essential service, Coles played a significant role in supporting the community and our own team members throughCOVID-19 in FY20. The comprehensive response included a number of initiatives that contributed to the final EBIT result forFY20:• A safe in-store environment for team members and customers through increased cleaning throughout the store, storesignage to help customers keep a safe distance, safety screens at checkouts, and increased security where required;• Helped the most vulnerable members of our community to access essential food and groceries through the introductionof Community Hour, Coles Online Priority Service and Coles Online Remote Delivery Service;• Increased total headcount by more than 5,000 during the year, including additional casual team members throughCOVID-19;• Additional food donations to the value of $7.9 million to SecondBite and Foodbank;• One-off thank-you payment to store and supply chain team members; and• Double discount on shopping and subsidised flu vaccinations offered to all team members.Looking aheadIn considering performance metrics to apply for the FY21 STI, the Board has approved two key changes. Firstly, theintroduction of a specific Online sales metric for Executive KMP in place of the Cash Realisation metric. The exceptionto this will be the CFO, who will retain the Cash Realisation metric. This shift demonstrates the importance of growth inthe online channel to achieving our strategic goals. Secondly, the Customer metric will be adapted from a blendedapproach to a single Net Promoter Score (NPS) metric. This simplifies the measurement and highlights the importance ofgoing beyond merely satisfying our customers to recruiting them as advocates for our business.The Board, as advised by the People and Culture Committee, regularly reviews the executive remuneration framework toensure it remains relevant, competitive and appropriate in the context of changing business and economic conditions.The Board believes the current remuneration framework for the Executive KMP continues to reflect Coles’ strategy andmarket positioning, and therefore has not proposed any further changes for FY21.Richard FreudensteinChair of the People and Culture CommitteeIntroductionThe Directors of Coles Group Limited (‘Coles’ or ‘the Company’) present the Remuneration Report for the Company and itscontrolled entities (collectively, ‘the Group’) for the financial year ended 28 June 2020 (‘FY20’). This report forms part of theDirectors’ Report, has been prepared in accordance with section 300A of the Corporations Act 2001 (Cth) and is audited.This is Coles’ first Remuneration Report covering an entire year as a newly listed public company, following our demergerfrom Wesfarmers Limited (‘Wesfarmers’) during FY19.This Remuneration Report covers the period from 1 July 2019 to 28 June 2020.Structure of this reportThe Remuneration Report is divided into the following sections: SECTION(1) Key Management Personnel(2) Remuneration governance(3) Remuneration policy and structure overview(4) FY20 Executive KMP remuneration outcomes(5) FY20 Non-executive Director remuneration(6) Ordinary Shareholdings SECTION 1: KEY MANAGEMENT PERSONNELColes is required to prepare a Remuneration Report in respect of the Group’s KMP, being the people who have the authorityand responsibility for planning, directing and controlling the Group’s activities, either directly or indirectly. This includes theBoard of Directors and Executive KMP.In this Remuneration Report, ‘Executive KMP’ includes the Managing Director and CEO and all other executives consideredto be KMP. References to ‘Other Executive KMP’ means the Executive KMP excluding the Managing Director and CEO.Table 1 sets out the details of those persons who were considered KMP of the Group during FY20.Table 1Non-executive Directors NAMEPOSITION HELD1James Graham AMChairman and Non-executive DirectorDavid CheesewrightNon-executive DirectorJacqueline ChowNon-executive DirectorAbi ClelandNon-executive DirectorRichard FreudensteinNon-executive DirectorWendy StopsNon-executive DirectorZlatko TodorcevskiNon-executive Director 1 All Non-executive Directors were in office during the whole financial year and up to the date of this report.Executive KMP NAMEPOSITION HELD1Steven CainManaging Director and Chief Executive OfficerLeah WeckertChief Financial OfficerGreg DavisChief Executive, Commercial & ExpressMatthew Swindells2Chief Operations Officer 1 All Executive KMP were in office during the whole financial year and up to the date of this report.2 Matthew Swindells became an Executive KMP on 1 July 2019, and the disclosures in this report are from that date onwards. Prior to this date, he held thenon-KMP position of Chief Supply Chain Officer.Coles Group Limited 2020 Annual Report76Coles Group Limited 2020 Annual Report77SECTION 2: REMUNERATION GOVERNANCE2.1 Governance frameworkThe diagram below provides an overview of the remuneration governance framework that has been established by Coles.Further information regarding the membership and meetings of the People and Culture Committee is provided in theDirectors’ Report.Remuneration consultants and external advisorsExternal advisors may be engaged either directly by the People and Culture Committee, or through management, toprovide information on remuneration-related issues, including benchmarking information and market data.During FY20 Mercer and PwC provided independent benchmarking and market analysis in relation to executive remunerationto the People and Culture Committee. No remuneration recommendations were made by external consultants.External advisorsThe People and CultureCommittee may seekadvice from independentremuneration consultantsin determining appropriateremuneration policiesfor the Group, andspecifcally remunerationarrangements for theManaging Director andCEO, and executivelevel direct reports to theManaging Director andCEO.Shareholders andother stakeholdersThe People and CultureCommittee may consultwith shareholders, proxyadvisors and otherrelevant stakeholders,in determiningappropriate remunerationpolicies for the Group,including remunerationarrangements for theManaging Director andCEO, and executivelevel direct reports to theManaging Director andCEO.ManagementManagement makes recommendations, to the People and CultureCommittee on matters including (but not limited to):• remuneration arrangements of executive-level direct reports tothe Managing Director and CEO, including the establishment ofany new, or amendment to the terms of any existing, incentiveand equity plans;• annual performance review of executive-level direct reports tothe Managing Director and CEO; and• changes to the Group’s remuneration policies.People and Culture CommitteeThe role of the Committee is to assist the Board in fulfilling itsresponsibilities to shareholders and regulators in relation to theGroup’s remuneration policies. The Committee does this byreviewing and making recommendations to the Board on mattersincluding (but not limited to):• remuneration arrangements of Non-executive Directors,the Managing Director and CEO, and executive-level directreports to the Managing Director and CEO;• the annual performance review of the Managing Directorand CEO and executive-level direct reports to the ManagingDirector and CEO;• remuneration outcomes for the Managing Director and CEOand executive-level direct reports to the Managing Directorand CEO; and• delegating authority for the operation and administrationof all Group incentive and equity plans to management (asappropriate).The BoardThe Board maintains overall accountability for oversight of the Group’s remuneration policies. Specifically, the Board approves allremuneration and benefit arrangements as they relate to the Managing Director and CEO and executive-level direct reports tothe Managing Director and CEO, having regard to the recommendations made by the People and Culture Committee, and theremuneration arrangements for Non-executive Directors.The Board maintains absolute discretion to either positively or negatively adjust the remuneration outcomes for the Managing Directorand CEO and executive-level direct reports. The Board will use its discretion based on the provision of supporting data to substantiate therequirement of an adjustment. Alternatively, they will use their own judgement and assessment of performance aligned to Coles’ valuesand LEaD behaviours, risk, compliance, reputational, safety and sustainability considerations and the quality of earnings delivered.Coles Group Limited 2020 Annual Report782.2 Corporate governance policies related to remunerationTo support a robust remuneration framework, Coles has a number of corporate governance policies related to remuneration,including those outlined below.2.2.1 Securities Dealing PolicyColes has adopted a Securities Dealing Policy that applies to all Coles team members including Non-executive Directorsand Executive KMP and their connected persons, as defined within the policy. This policy sets out the insider trading lawsand restrictions with which KMP must comply, including obtaining approval prior to trading in Coles securities and nottrading within blackout periods. The policy aims to protect the reputation of the Group and maintain confidence in tradingin Coles securities. It also prohibits specific types of transactions being made which are not in accordance with marketexpectations or may otherwise give rise to reputational risk.2.2.2 Minimum Shareholding PolicyTo build strong alignment between KMP and shareholders, Coles has established a Minimum Shareholding Policy. Thepolicy requires both Executive KMP and Non-executive Directors to build and maintain a significant shareholding in Coles.Executive KMPEach Executive KMP is 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. Thedetails of each Executive KMP shareholding are summarised in Tables 8.1 and 12.In addition to Executive KMP, this policy also applies to all other executive-level direct reports to the Managing Director and CEO.Non-executive DirectorsEach Non-executive Director is required to hold at least 1,000 ordinary shares in the Company within six months of theirappointment. The shares may be held by a Non-executive Director either in his or her own name, or indirectly in the nameof either an entity controlled by the Non-executive Director or a closely related party.Within five years of appointment, each Non-executive Director is expected to increase his or her shareholding to an amountequivalent to 100% of their annual base fee at that time. As at the date of this Remuneration Report, each Non-executiveDirector meets this requirement.SECTION 3: REMUNERATION POLICY AND STRUCTURE OVERVIEW3.1 Remuneration policy for FY20In FY20, we introduced our updated remuneration framework aligned to our ‘Winning in our Second Century’ strategy. Asdisclosed in the FY19 Remuneration Report, the FY20 framework is guided by our remuneration principles and designed toensure remuneration at Coles is market-competitive, performance-based, creates long-term value for shareholders, andis fit-for-purpose.In contrast to legacy remuneration arrangements established immediately following demerger, the FY20 framework is moreheavily focused on performance-based pay delivered through equity awards. When balanced with the performanceconditions to be achieved, the People and Culture Committee believes that the framework is appropriately aligned to ourstrategy and the interests of our shareholders. Market competitiveRetail is a globallycompetitive industry.We need to be able toattract, motivate and retainhigh calibre executives inboth the local and globaltalent market.Performance-basedA strong link toperformance-based pay tosupport the achievementof strategy aligned to short,medium and long-termfinancial targets.Creates long-term value forshareholdersEnsuring there is a commoninterest between executivesand shareholders byaligning reward to theachievement of sustainableshareholder returns.Fit-for-purposeDesigned to be relevantto how Coles operates.It needs to be simple toarticulate, drive the rightbehaviours and ensure wedeliver on our strategy. Coles Group Limited 2020 Annual Report793.2 Delivered through a simple, three-element structureExecutive KMP remuneration is delivered using both fixed and variable (at-risk) components as outlined below.Specific performance measures and outcomes for FY20 are included in section 4. Fixed elementsVariable elements1Total FixedCompensation(TFC)Short-term incentive (STI)Long-term incentive (LTI)How it isdeliveredCashCashEquity (Shares)Equity (Performance Rights)How it works• consists of basesalary andsuperannuation• target positionis the 50thpercentile ofthe ASX 10-40comparatorgroup (plusreferenceto local andinternationalretailers, asappropriate)• paid as part cash, part deferred equity= Managing Director and CEO 50% isdeferred into shares and restricted for2 years= Other Executive KMP 25% is deferred intoshares and restricted for 1 year• opportunity levels (all Executive KMP):= 80% of TFC at Target= 120% of TFC at Maximum• measured against an individual balancedscorecard consisting of:= 60% financial measures= 40% strategic and non-financialmeasures• includes a mixture of group and functionalstrategic measures• delivered in performance rights, subjectto 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 inshares upon vestingWhat it doesAllows us to attractand retain keytalent throughcompetitiveand fair fixedremunerationIncentivises strong individual and Companyperformance, based on strategically aligneddeliverables, through variable, at-riskpaymentsAligns reward with creation of sustainable,long-term shareholder value 1 Excludes transition arrangements put in place for the Managing Director and CEO as outlined in section 4.7Coles Group Limited 2020 Annual Report80The graphic below demonstrates the award delivery time horizons from FY20.TFC Financial Year 1Performance period (3 years)Performance Rights vest subject to performance hurdles being metFinancial Year 2Financial Year 3Financial Year 4Performance period (1 year)Salary paid during the yearPerformance period (1 year)Other Executive KMP – 75% paid iMD & CEO – 50% paid in cashOther Executive KMP – 25% deferrMD & CEO – 50% deferred into Shn cash2-ed into Shares held in restriction foares held in restriction for 2 years1-year vesting perioyear vesting periodr 1 yeard LTI STI3.3 FY20 target remuneration mix for Executive KMPThe FY20 remuneration mix at target for the Executive KMP is outlined below:Chart 1Managing Director and CEO Other Executive KMPTFCSTI CashSTI EquityLTI11%11%28%50%6%18%30%46%TFCSTI CashSTI EquityLTI3.4 Executive KMP service agreementsThe terms of employment for the Executive KMP are formalised in employment contracts that have no fixed term. Specificinformation relating to the terms of the Executive KMP’s employment contracts is set out in Table 2.Table 2 NAMENOTICE PERIOD1RESTRAINT OF TRADESteven Cain12 months12 monthsLeah Weckert12 months12 monthsGreg Davis6 months6 monthsMatthew Swindells6 months6 months 1 Executive KMP can be terminated without notice if they are found to have engaged in serious or wilful misconduct, are seriously negligent in theperformance of their duties, commit a serious or persistent breach of their employment contract, or commit an act, whether at work or otherwise, thatwould bring the Group into disrepute. Coles may also make a payment in lieu of notice.Coles Group Limited 2020 Annual Report81SECTION 4: FY20 EXECUTIVE KMP REMUNERATION OUTCOMES4.1 Company performanceThis section of the Remuneration Report provides an overview of how the Company’s performance for FY20 has drivenremuneration outcomes for our Executive KMP.Coles’ remuneration framework has been designed to reward Executive KMP for their contribution to the collectiveperformance of Coles and to support the alignment between the remuneration of Executive KMP and shareholder returns.Table 3 summarises key indicators of Coles’ performance and relevant shareholder returns over FY20.As Coles listed on the ASX on 21 November 2018, it is not possible to address the statutory requirement that Coles providea five-year discussion of the link between Company performance and remuneration. Details are included for FY19 as wellas the first full year of results in FY20. This table will continue to be expanded in future years to provide comparative metricsfor the financial years in which Coles is listed.Table 3 FINANCIAL SUMMARYBASISYEAR ENDED28 JUNE 2020YEAR ENDED30 JUNE 2019Group Earnings Before Interest and Tax (EBIT)Statutory$1,762m$1,467mGroup EBIT (pre AASB 16 and significant items)Statutory$1,387m$1,343mGroup Sales1Retail$37,408m$35,001mGroup Sales (adjusted retail basis)2Retail$38,109m$35,741mReturn on capital (ROC) (pre-AASB 16 and significant items)3Statutory35.2%32.9%Dividends paid per ordinary share (cents)465.5–Closing share price (as at end of financial year)5$16.79$13.35Total shareholder return (TSR) (%)631.7%6.9% 1 Retail sales reflect the retail calendar period and exclude Fuel sales and Hotels sales.2 Retail sales adjusted to include concession sales and remove flybuys point redemption costs.3 ROC is Group EBIT (pre AASB 16 and significant items) divided by capital employed. Capital employed is calculated on a rolling average basis (sevenmonths in FY19).4 The dividends paid per ordinary share reflect the dividends shareholders received within each financial period. Dividends paid within each financial yeardoes not reflect the dividends determined for the same financial year due to the dividend payment date. The Directors determined a dividend relatingto FY19 of 35.5 cents per share (final dividend of 24.0 cents per share plus special dividend of 11.5 cents per share) which was paid on 26 September 2019.Similarly, the interim dividend of 30.0 cents per share was paid on 27 March 2020. The final dividend determined by Directors for FY20 was 27.5 cents pershare to be paid on 29 September 2020 (FY21).5 The opening share price on listing on the ASX on 21 November 2018 was $12.49.6 TSR is calculated as the change in share price during the financial year, plus dividends reinvested on the respective ex-dividend dates.4.2 Board oversight of remuneration outcomesThe Board maintains absolute discretion to ensure that remuneration outcomes are appropriate in the context of theCompany’s performance, our customer experience and shareholder expectations. The Board has discretion in evaluatingthe achievement against performance measures, including to adjust for unusual factors. The Board recognises thatCOVID-19 has created a challenging environment that needs to be considered when determining remuneration outcomes.As part of its assessment, the Board considered if there were windfall gains or losses and determined that the calculatedremuneration outcomes appropriately aligned to shareholder outcomes and the Board’s assessment of management’sperformance. The steps undertaken by the Board to inform this decision with respect to STI outcomes for FY20 are furtheroutlined in section 4.4.4.3 Total fixed compensation (TFC)For FY20, TFC was designed to be competitive to attract, motivate and retain the right talent. As disclosed in the FY19Remuneration Report, the TFC for Executive KMP was compared to the ASX 10-40 benchmark group, as well as both localand international retailers. TFC was targeted at the 50th percentile of this peer group for comparable roles.Coles Group Limited 2020 Annual Report82At the start of FY20, the Board conducted a detailed review of Executive KMP TFC and total remuneration packagesagainst the new comparator group. This was informed by a detailed benchmarking exercise conducted by Mercer. Thetiming of this review coincided with the restructure of the Executive Leadership Team, aligned to the launch of the newcompany strategy. In light of the review outcomes, the Board determined that it was appropriate to apply a TFC increaseto each of the Executive KMP, with the exception of the Managing Director and CEO, who did not receive an increase.The increase for Other Executive KMP was effective from 1 July 2019 and is reflected in the summary of total remunerationreceived by Executive KMP in Table 7 of this report.In making this decision the Board considered the following:• no prior increases – there had been no increase in TFC for any of the Executive KMP at the time of listing on the ASX (inNovember 2018);• size and complexity of role, and the individual’s experience, skills and performance – since demerger in 2018, theExecutive KMP have continued to deliver performance consistent with, and in some cases, exceeding Boardexpectations, resulting in strong returns for shareholders; and• alignment to our remuneration principles – the increase in TFC reflects our ‘market competitive’ principle, ensuring thatwe continue to attract, motivate and retain high calibre executives in both the local and global talent market.A review of fixed remuneration will be conducted in FY21 in line with our remuneration principles. Any approved changeswill be disclosed in our 2021 Remuneration Report.4.4 Short-term incentive (STI)The FY20 Coles STI is designed to reward Executive KMP for the achievement of key short-term performance measures.A balanced scorecard approach was introduced for all Executive KMP in FY20. This provides a simple and transparentapproach to highlighting performance priorities, measuring performance outcomes against each weighted metric, andprovides clarity regarding the connection between the performance assessment and reward outcomes.The FY20 STI payable for the Executive KMP was assessed against individual balanced scorecards (as demonstrated inTables 4 and 5) consisting of Financial, Strategic and Non-financial metrics. The scorecards also include a mixture of groupand functional strategic metrics. Scorecard metrics are reviewed by the Board on an annual basis to ensure alignment withthe Company’s strategy. The scorecards also include a Quality and Behaviours overlay which considers:• how the Executive KMP achieved performance aligned to the Coles values and LEaD behaviours;• risk, compliance and reputational matters; and• the quality of earnings delivered.Table 4FY20 Financial Performance Measures (All Executive KMP)The Executive KMP have a maximum STI opportunity equivalent to 150% of target (80% of TFC at target and 120% of TFCat maximum). The FY20 Group Financial performance measures contribute up to 110% of the target STI opportunity for allExecutive KMP (60% at target) as outlined in Table 4. MEASUREFY20 TARGETFY20 ACTUALACHIEVEMENTTARGETWEIGHTINGMAXIMUMWEIGHTINGACTUAL STIOUTCOMEGroup EBIT$1,343m$1,387mAbove Stretch35%70%70%Group Sales$36,636m$38,109mAbove Stretch15%30%30%Group Cash Realisation107%111%Above Target10%10%10%OVERALL PERFORMANCE60%110%110% Coles Group Limited 2020 Annual Report83Further details regarding each financial performance measure in Table 4 is provided as follows:Group EBIT (pre AASB 16 and significant items) increased by 4.7% driven by strong trading performance and costmanagement initiatives in Supermarkets, and the realisation of cost savings from the Smarter Selling program. This waspartly offset by lower earnings in Express, particularly in the last quarter of the year from government-imposed stay-athome measures in response to COVID-19.Group Sales (adjusted retail basis) increased by 6.6% driven by growth in Supermarkets from successful value and collectiblecampaigns, tailored range reviews and Own Brand sales growth. Liquor sales increased from growth in Exclusive LiquorBrands and benefits from First Choice Liquor Market conversions. Both segments experienced trading uplifts in the latterpart of the year from the COVID-19 driven increase in at-home consumption, as did Express convenience store sales whichoffset lower foot traffic in-store following the introduction of stay-at-home measures across the country.Group Cash Realisation reflects both a strong trading performance and disciplined working capital management withinventory reducing faster than trade payables towards the end of the financial year. Cash realisation is calculated asoperating cash flow excluding interest and tax, divided by earnings before interest, tax, depreciation and amortisation(EBITDA) (excluding significant items).Table 5FY20 Strategic and Non-Financial Measures for the Managing Director and CEOThe strategic and non-financial measures contribute up to 40% of the target STI opportunity for the Managing Director and CEO. AREATARGET/MAXWEIGHTINGACTUAL STIOUTCOMEPERFORMANCEStrategy – Smarter Selling10%10%Cost savings in excess of $250 million were achievedthrough Smarter Selling initiatives which exceeded theannual target set for FY20. This was due to enhancedlogistics solutions for stores and distribution centres,improved labour productivity through integration ofoperations and supply chains teams and measures toreduce loss in store.Safety – TFIFR10%10%Team member safety significantly improved across FY20with the Total Recordable Injury Frequency Rate improvingby 18.3%.People – mysayengagement score10%10%Team member engagement improved by sevenpercentage points for the full year, alongside recordparticipation.Customer –Tell Coles w/NPSgateway Value10%8.75%Availability demands as a result of COVID-19 impacted thefull achievement of the FY20 Tell Coles metric. However,the NPS gateway was exceeded. The Value target wasmet for FY20, and this was a reflection of the success ofthe ‘Helping lower the cost of…’ campaign.OVERALL PERFORMANCE40%38.75% FY20 Strategic and Non-Financial Measures for the Other Executive KMP (aggregated summary)The Other Executive KMP have the same financial measures and outcomes as detailed in Table 4.The strategic and non-financial measures contribute up to 40% of the target STI opportunity for the Other Executive KMPand comprise measures that are largely aligned to the Managing Director and CEO. Each have variances consistent withthe respective portfolios they lead at Coles. Achievements against the strategic and non-financial measures for each ofthe Other Executive KMP ranged from partially achieved to full achievement.Coles Group Limited 2020 Annual Report844.4.1 FY20 STI Award OutcomesAt the conclusion of FY20, the Board assessed the performance against the balanced scorecard of the Managing Directorand CEO and each of the Other Executive KMP to determine any STI award outcome payable based on this assessment.In its assessment, the Board considered the performance of the Group, including the periods both pre-COVID-19 and sinceCOVID-19. The Board was mindful of the need to avoid unintended windfall gains or losses while rewarding Executive KMPfor strong performance and delivering value to shareholders. The Board formed the view that the STI outcomes for theExecutive KMP were a fair reflection of performance throughout the full year. The Board therefore did not adjust the FY20STI outcomes for any impacts related to COVID-19.The following reflects the rationale considered by the Board in making this decision:• Our shareholders have continued to see solid returns from their investment relative to the broader market across the fullyear. Our share price has grown, and we have maintained a strong dividend with a total shareholder return over thefinancial year of 31.7% reflecting top quartile performance compared to the ASX 50 and ASX 100 respectively.• Prior to the impact of COVID-19 on demand, the Group was on track to deliver above-target EBIT and salesperformance and all other metrics for the Executive KMP were largely on track to either meet or exceed expectations.This performance is directly linked to the turnaround of the organisation driven by the delivery of strategic objectivesdefined in the ‘Winning in our Second Century’ strategy.• The focus on inspiring our customers and our team members continued to be at the heart of all decisions made duringCOVID-19. We have seen the positive impact of this with Coles posting the biggest improvement on the Roy Morgan RiskMonitor list of trusted retailers in Australia and significant improvements in our team member engagement score, whichis heavily influenced by our team members on the frontline out in stores.• The STI targets set at the beginning of the year were established within the context of changing consumer habits. WhileCOVID-19 had a significant impact on sales, from late Q3 and through Q4 of FY20, our cost base was also elevated. Thiswas the result of additional investments made to ensure the safety of our customers and team members.• The entire Coles business has responded at pace to the shift in strategic priorities. Changes and initiatives have beenimplemented to effectively manage business disruption. As Coles is an essential service, we were actively involvedin the government response to COVID-19. At times, this required decisions being taken for the benefit of the broaderAustralian community. This included temporarily suspending our Online business, introducing purchasing limits andimplementing significant measures in store to keep customers and team members safe. Although these changes weremade at short notice, they remain aligned to our vision to become the most trusted retailer in Australia and grow longterm shareholder value.The Board also considered the appropriate application of the Quality and Behaviours overlay to determine the finalExecutive KMP STI outcomes for FY20 as detailed in Table 6.A key change in FY20 was the introduction of STI deferral into equity. This change further aligns Executive KMP andshareholder interests, and facilitates additional forfeiture provisions for a significant period, reflecting good governance.As a result, the Managing Director and CEO’s STI will be delivered 50% in cash, with the remaining 50% deferred intoequity for two years (subject to shareholder approval at the Coles 2020 AGM). For the Other Executive KMP, the STI will bedelivered 75% in cash with the remaining 25% deferred into equity for one year.Coles Group Limited 2020 Annual Report85Table 6FY20 Executive KMP STI OutcomesDetails of the Executive KMP STI opportunity and actual payments received for FY20 are provided in Table 6. STI OPPORTUNITY(% OF TFC)1STIAWARDEDSTIFORFEITED4NAMETARGETMAXIMUM$% OF TFCCASH2EQUITY3(%)Steven Cain80%120%$2,499,000119.0%$1,249,500$1,249,5000.8%Leah Weckert80%120%$1,140,000120.0%$855,000$285,000–Greg Davis80%120%$962,500110.0%$721,875$240,6258.3%Matthew Swindells80%120%$945,600118.2%$709,200$236,4001.5% 1 The minimum STI opportunity was nil.2 The FY20 cash component of the STI will be paid on or about 15 September 2020.3 The FY20 equity component of the STI will be granted in STI Shares following the Coles 2020 Annual General Meeting (AGM), using a 10 day VolumeWeighted Average Price (VWAP) for the period up to and including 28 June 2020, of $16.47. Equity for the Managing Director and CEO will not be granteduntil shareholder approval is obtained at the Coles 2020 AGM.4 As a percentage of STI Maximum Opportunity.Terms of the FY20 Short-term incentive (STI) What was the Performance Period?1 July 2019 – 28 June 2020What were the performance metrics?For the Managing Director and CEO, and for Other Executive KMP, the STI award was calculated using a balancedscorecard as detailed in section 4.4. This included EBIT, Sales, Cash Realisation, Safety, People, Customer and othertransformation or strategically aligned metrics.Why were the performance conditions chosen?The financial measures of EBIT, Sales and Cash Realisation align with the Company’s strategy and the commitmentsmade to shareholders in launching this strategy ahead of FY20. In particular, EBIT focuses on delivering strong earningsthrough the business cycle and ensuring strong returns for Coles’ shareholders. Including a sales metric as well as EBITensures 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 to ‘Inspire Customers’, ‘Win Together’,and streamline our business through ‘Smarter Selling’.How were the conditions assessed?Performance against the balanced scorecard metrics were assessed by the Board based on the Company’s annualaudited results, financial statements and other data provided to the Board.This method was adopted as the Board believes it is the most appropriate way to assess the true performance of theCompany and the Executive KMP’s contribution to determine remuneration outcomes.What portion of the STI component was deferred into equity?As detailed in Table 6, once the individual scorecard calculation has been completed, the total STI award is determined.The equity deferred amount is then determined by reference to 50% of the total STI award for the Managing Director andCEO, and 25% of the total STI award for the Other Executive KMP.This amount is then used to determine the number of shares (‘STI Shares’) that will be granted and subject to deferral.This is calculated using the 10 day VWAP up to and including the final day in the performance period (i.e. 28 June 2020).The shares are granted following the payment of the cash component of the STI award and are unable to be tradedduring the restricted period: one year for the Other Executive KMP and two years for the Managing Director and CEO.Once the restricted period ends, the restriction is lifted and the Executive KMP may trade these shares in accordancewith Coles’ Securities Dealing Policy. Coles Group Limited 2020 Annual Report86 When will the FY20 STI award be paid?The cash component of the STI award will be paid in September 2020.The STI equity component will be allocated following the Coles 2020 AGM, where shareholder approval will be sought forthe grant to the Managing Director and CEO.What happens if an Executive KMP left the organisation?In the event of resignation or dismissal for cause or significant underperformance prior to payment of the STI, an ExecutiveKMP would 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 causeor 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 willcontinue 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 theprogram up until the date of payment. 4.5 Long-term incentive (LTI)The FY20 LTI is designed to reward Executive KMP for the achievement of long-term sustainable returns for shareholders.As outlined in section 3, for FY20 the LTI component of Executive KMP remuneration was delivered in Performance Rights.The Performance Period for the FY20 LTI runs from 1 July 2019 to 26 June 2022 (retail calendar year end for FY22).Performance Rights will vest subject to the satisfaction of the following performance conditions measured over thePerformance 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 willbe compared to companies in the S&P ASX 100 (‘Comparator Group’) as at 30 June 2019.These performance conditions were chosen because they provide a direct link between Executive KMP reward andsustained shareholder returns to promote further alignment with shareholders.4.5.1 ROC componentVesting of the Performance Rights in the ROC component is subject to achievement of at least 95% of the cumulative ROCtarget over the Performance Period.Cumulative ROC measures the Company’s average annual return on capital over the Performance Period against targetsset by the Board. Cumulative ROC is calculated based on the Company’s audited financial information. The Board willassess cumulative ROC after the end of the Performance Period.In assessing achievement against the cumulative ROC performance condition, the Board may have regard to any mattersthat it considers relevant and retains discretion to review outcomes to ensure that 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 cumulativeROC performance determined over the Performance Period by reference to the following vesting schedule: GROUP CUMULATIVE ROC OVER THE PERFORMANCE PERIOD% OF PERFORMANCE RIGHTS THAT VESTEqual to or below 95% of the cumulative ROC target isachieved0%Between 95% and 105% of the cumulative ROC target isachievedStraight-line pro rata vesting between 0% – 100%Equal to 105% or above of the cumulative ROC target isachieved100% Coles Group Limited 2020 Annual Report87The ROC targets are considered by Coles to be commercially sensitive. However, the Board will disclose the relevantvesting outcomes following the end of the Performance Period.4.5.2 RTSR componentThe number of Performance Rights in the RTSR component that vest, if any, will be based on Coles’ RTSR ranking within theS&P ASX 100 Comparator Group over the Performance Period, as set out in the following vesting schedule: COLES RTSR RANK IN THE COMPARATOR GROUP% OF PERFORMANCE RIGHTS THAT VESTBelow the 50th percentile0%Equal to the 50th percentile50%Between 50th percentile and 75th percentileStraight-line pro rata vesting between 50% – 100%Equal to the 75th percentile or above100% Following testing, any Performance Rights that do not vest will lapse. There is no re-testing of awards.4.5.3 FY20 LTI outcomesPerformance Rights granted under the FY20 LTI will be tested following the end of FY22 (the end of the Performance Period).Details of the number of Performance Rights granted under the FY20 LTI are included in section 4.8. Details of equity awardsgranted to Executive KMP in prior years (including applicable performance conditions and vesting dates) are containedin the FY19 Remuneration Report.Terms of the FY20 Long-term incentive (LTI) How is the LTI award delivered?The LTI award was delivered in Performance Rights. Each Performance Right entitles the Executive KMP to one ordinaryshare in the Company on vesting. The Board retains a discretion to make a cash equivalent payment in lieu of anallocation of shares.Performance Rights vest subject to achievement of relevant performance conditions and were allocated to ExecutiveKMP 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 FY20 Long Term Incentive plan were granted on 29 November2019 following the 2019 Coles AGM (at which the grant made to the Managing Director and CEO was approved).How are Performance Rights allocated?The number of Performance Rights allocated to the Executive KMP was determined by dividing each Executive KMP’s LTIopportunity by the VWAP of Coles shares trading on the ASX over the 10 trading days up to and including 30 June 2019,rounded up to the nearest whole number.What is the Performance Period?The Performance Period is 1 July 2019 to 26 June 2022 (the last trading day of the FY22 retail calendar year).What are the performance conditions?Performance Rights are subject to the following performance conditions:• 50% of the LTI award is subject to a ROC hurdle; and• 50% of the LTI award is subject to a RTSR hurdle.Further information on the performance conditions is provided earlier in section 4.5.How are the performance conditions assessed?RTSR performance is independently assessed at the end of the Performance Period against the constituents of the S&PASX 100 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 ensurethe accuracy of underlying information. Coles Group Limited 2020 Annual Report88 When does testing and vesting occur?Testing of performance against performance conditions will occur after the end of the Performance Period (being 26June 2022).Following testing, the Board will determine the number of Performance Rights to vest, which is expected to occur in lateAugust 2022. Details regarding the vesting of the Performance Rights will be included in the FY22 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 ispermitted.What happens if an Executive KMP ceases employment?In the event of resignation or dismissal for cause or significant underperformance, all unvested Performance Rights willlapse, unless the Board determines otherwise.In any other circumstances (including by reason of redundancy, permanent disability, death or ill health), a pro ratanumber of Performance Rights (based on the proportion of the Performance Period that has been served) will remainon foot and subject to the original terms of offer, as though the Executive KMP had not ceased employment, unless theBoard 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.After testing against the performance conditions, Executive KMP will receive a dividend equivalent amount related tothe vested Performance Rights only. The dividend equivalent amount will be delivered in additional shares, equal invalue to the value of dividends that would have been paid on the vested rights had the Executive KMP been the ownerof Coles shares during the period from the Performance Rights grant date to the vesting date. Particularly, there is nodividend payable on any Performance Rights that do not vest.The Board retains a discretion to settle the dividend equivalent amount in cash.How can the Board apply discretion to clawback outcomes?The Board has broad clawback powers to determine that any Performance Rights may lapse, any shares allocated onvesting are forfeited, or that the Executive KMP is required to pay as a debt the net proceeds of the sale of shares ordividends in certain circumstances (for example the Executive KMP has acted fraudulently or dishonestly, has engagedin 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 PerformanceRights 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, unvestedPerformance 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 willbe free to deal with the shares allocated on vesting of the Performance Rights, subject to the requirements of Coles’Securities Dealing Policy. Coles Group Limited 2020 Annual Report894.7 Transition awardsPrior to the demerger of Coles, Wesfarmers put in place a small number of transition arrangements for certain Coles executives.These arrangements were disclosed in the Demerger Scheme Booklet, are temporary and have not been replicated postdemerger. The transition arrangements that were paid across financial years including FY20 are outlined below.Managing Director and CEOAs part of Mr Cain’s employment agreement with Coles, Wesfarmers agreed to compensate Mr Cain for short-and longterm incentives that were forfeited or forgone with his prior employer, due to his acceptance of the role with Coles.As disclosed in the Demerger Scheme Booklet, the maximum cash amount of compensation payable to Mr Cain is$3,900,000. This amount was structured into three tranches, with the final tranche paid in FY20:1. $900,000 paid by Coles on 4 December 2018;2. $1,500,000 paid by Coles on 28 December 2018; and3. $1,500,000 paid by Coles on 27 December 2019.These payments were subject to service conditions. The payments made on 28 December 2018 and 27 December 2019 aresubject to clawback (for example, where there is a material misstatement in, or omission from, the Company’s financialstatements or as a result of fraud, dishonesty or breach of obligations) for a period of two years from the date of eachpayment.4.8 Summary of remuneration received by Executive KMP (statutory remuneration)Table 7 details the nature and amount of each element of remuneration of the Executive KMP. The increase in the totalcompensation value for FY20 compared to FY19 largely reflects the inclusion of Mr Swindells as Executive KMP in FY20,and the pro-rating of remuneration in FY19. Pro-rating for FY19 was aligned to the dates from which each individual wasconsidered KMP, as well as the timing of Coles ceasing to be a wholly-owned subsidiary of Wesfarmers.There were no transactions or loans between Executive KMP and the Company or any of its subsidiaries during FY20.Coles Group Limited 2020 Annual Report90Table 7 SHORT-TERMLONG-TERMPOSTEMPLOYMENTVALUE OFSHARE-BASED PAYMENTS2NAMEYEARBASE SALARYOTHERBENEFITS1CASH STILONG SERVICELEAVESUPERANNUATIONBENEFITSPERFORMANCERIGHTSSHARESTOTALCOMPENSATIONCurrent Executive KMPSteven Cain2020$2,069,647$1,501,776$1,249,500$3,122$21,003$1,156,486$963,545$6,965,0792019$1,815,929$2,403,010$822,314$10,284$25,665–$319,110$5,396,312Leah Weckert2020$900,440$1,323$855,000$9,191$21,003$448,433$636,941$2,872,33120193$686,674$710,255$408,240$6,988$16,197–$443,693$2,272,047Greg Davis2020$850,211$1,765$721,875$29,930$21,003$413,035$612,703$2,650,52220194$465,265$631,667$362,880$8,136$12,148–$364,142$1,844,238Matthew Swindells52020$755,724$1,074$709,200$3,122$21,003$377,632$487,522$2,355,277TOTAL 2020$4,576,022$1,505,937$3,535,575$45,365$84,012$2,395,586$2,700,711$14,843,209TOTAL 20196$2,967,868$3,744,932$1,593,434$25,408$54,010–$1,126,945$9,512,5976 1 Other benefits include costs associated with employment (including any applicable fringe benefits tax) including awards noted under section 4.7.2 The figures in this column for share-based payments represent share-based awards that are not yet vested in favour of the Executive KMP in the financial period presented. The amounts represent theaccounting fair value of the grants of Restricted Shares, Performance Shares and STI Shares. It also includes legacy Wesfarmers share awards allocated to Ms Weckert, Mr Davis and Mr Swindells prior tothe demerger pursuant to Wesfarmers share plans, which Ms Weckert, Mr Davis and Mr Swindells received as Wesfarmers employees and are being expensed over the relevant performance period. Inaccordance with the Accounting Standards the accounting fair value of the grants is recognised proportionally over the grant’s performance period. Refer to section 4.5 for further details for the grants, theirperformance conditions and performance periods. If the performance conditions are not met, the Executive KMP will not be entitled to the shares.3 Represents remuneration received as Coles KMP from 17 September 2018. Total base salary received by Ms Weckert for FY19 was $875,877.Ms Weckert participated in the 2015, 2016 and 2017 Wesfarmers Employee Share Acquisition Plan (WESAP), and at the time of demerger she held the following Wesfarmers shares:• 11,511 Restricted Shares held under the 2015 WESAP, subject to vesting in November 2018• 10,895 Restricted Shares held under the 2016 WESAP, subject to vesting in November 2019; and• 6,962 Restricted Shares and 6,962 Performance Shares under the 2017 WESAP, subject to vesting (and testing for the Performance Shares) in December 2020.During FY19 Ms Weckert’s 2015 WESAP vested in full, and she retained Restricted Shares under the 2016 and 2017 plans.During FY20 Ms Weckert’s 2016 WESAP vested in full, and she retained Restricted Shares under the 2017 plan.4 Represents remuneration received as Coles KMP from 28 November 2018. Total base salary received by Mr Davis for FY19 was $783,354.Mr Davis participated in the 2015, 2016 and 2017 Wesfarmers Employee Share Acquisition Plan (WESAP) and at the time of demerger he held the following:• 8,057 Restricted Shares and 8,057 Performance Shares under the 2015 WESAP, subject to vesting (and testing for the Performance Shares) in November 2018• 7,627 Restricted Shares and 7,627 Performance Shares under the 2016 WESAP, subject to vesting (and testing for the Performance Shares) in November 2019; and• 6,962 Restricted Shares and 6,962 Performance Shares under the 2017 WESAP, subject to vesting (and testing for the Performance Shares) in December 2020.During FY19 Mr Davis’ 2015 WESAP Restricted Shares vested in full, and 2,819 Performance Shares vested (5,238 Performance Shares were forfeited). He retained Restricted and Performance Shares under the2016 and 2017 plans.During FY20 Mr Davis’ 2016 WESAP Restricted Shares vested in full, and 2,589 Performance Shares vested (5,038 Performance Shares were forfeited). He retained Restricted and Performance Shares under the2017 plans.5 Mr Swindells’ remuneration is disclosed for the period he was an Executive KMP, which commenced on 1 July 2019.Mr Swindells participated in the 2017 Wesfarmers Employee Share Acquisition Plan (WESAP) and at the time of demerger he held 6,962 Restricted Shares and 6,962 Performance Shares under the 2017 WESAP,subject to vesting (and testing for the Performance Shares) in December 2020.Mr Swindells did not have a holding under the 2015 or 2016 WESAP at demerger, so he has not received any vesting under these plans in FY19 or FY20.6 Mr John Durkan was a Director of Coles in FY19 from 1 July 2018 until 17 September 2018 (during the pre-demerger period). As Mr Durkan ceased to be a KMP in FY19 he has been excluded from Table 7. Forcomparative purposes, Mr Durkan’s total compensation for FY19 was $1,518,639 as detailed in the FY19 Remuneration Report.Coles Group Limited 2020 Annual Report914.9 Summary of Executive KMP shareholding and Performance RightsTables 8.1 and 8.2 show the movements of Coles Performance Rights, Restricted Shares and Performance Shares, heldbeneficially, by each Executive KMP during FY20. Details of ordinary shares are provided in Table 12. No shares wereacquired as remuneration during the year.Table 8.1 Restricted and Performance Shares MOVEMENTS DURING THE FINANCIAL PERIODADDITIONALINFORMATIONNAMESHARE TYPEBALANCE OFSHARES HELD AT1 JULY 20192VESTED/RELEASEDDURING THEYEARFORFEITEDDURING THEYEARCLOSINGBALANCE AT28 JUNE 20202ACCOUNTINGFAIR VALUEOF GRANT YETTO VEST ($)1Steven CainRestricted Shares85,057––85,057$881,191Performance Shares85,057––85,057$696,617Leah WeckertRestricted Shares61,272(10,895)3–50,3773$377,653Performance Shares36,453––36,453$298,550Greg DavisRestricted Shares61,580(15,254)3–46,3263$335,685Performance Shares32,402––32,402$265,372Matthew SwindellsRestricted Shares40,251––40,2513$272,748Performance Shares26,327––26,327$215,621 1 The fair value of Restricted Shares and Performance Shares is an estimate of the total maximum value of grants in future financial years. Restricted Sharesand Performance Shares are subject to the satisfaction of conditions and therefore the minimum total value of the awards for future financial years is nil. Theaccounting fair value does not include those detailed in footnote 3 (shares acquired through demerger as a result of WESAP holdings).2 The Restricted Shares and Performance Shares totals include shares allocated under the FY19 LTI award. Restricted Shares are time based only. PerformanceShares vest based on the achievement of performance conditions aligned to RTSR and cumulative EBIT with a ROC gateway. Full details regarding thisaward are detailed in the FY19 Remuneration Report.3 The Restricted Shares total for the Other Executive KMP includes Coles shares acquired through demerger as a result of their holding of WESAP shares, asdetailed in Table 7. These shares are only subject to a holding lock while the Other Executive KMP remain employed by Coles, or until the date the WESAPaward that these Coles shares were allocated as a result of, vest (whichever is the earlier). During the year Ms Weckert had 10,895 of these shares released,and Mr Davis had 15,254 released. On release, the holding lock is removed. The Other Executive KMP each continue to hold 13,924 shares linked to the 2017WESAP award as at the end of FY20.Table 8.2 Performance Rights MOVEMENTS DURING THE FINANCIAL PERIODADDITIONALINFORMATIONNAMEBALANCE OFRIGHTS HELDAT 1 JULY 2019RIGHTSALLOCATED ASREMUNERATIONRIGHTS VESTED/LAPSED DURINGTHE YEARCLOSINGBALANCE AT28 JUNE 2020ACCOUNTING FAIRVALUE OF GRANTYET TO VEST ($)1Steven Cain–275,901–275,901$3,469,457Leah Weckert–106,982–106,982$1,345,299Greg Davis–98,537–98,537$1,239,105Matthew Swindells–90,091–90,091$1,132,896 1 The fair value of Performance Rights is an estimate of the total maximum value of grants in future financial years. The fair value per Performance Right at thegrant date of 29 November 2019 was $10.52 for the TSR component and $14.63 for the ROC component. Performance Rights are subject to the satisfaction ofconditions, and therefore the minimum total value of the awards for future financial years is nil.Coles Group Limited 2020 Annual Report92SECTION 5: FY20 NON-EXECUTIVE DIRECTOR REMUNERATION5.1 Non-executive Director remuneration frameworkNon-executive Director remuneration is designed to ensure that the Company can attract and retain suitably qualifiedand 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. To maintain the independence of directors, Nonexecutive Directors do not receive shares or any performance-related incentives as part of their remuneration from theCompany. A minimum shareholding policy applies to Non-executive Directors (see section 2.2.2).Non-executive Directors are reimbursed for travel and other expenses reasonably incurred when attending meetings ofthe Board or conducting the business of the Company.The People and Culture Committee reviews and makes recommendations to the Board with respect to Non-executiveDirectors’ fees and Board committee fees.5.2 Current Non-executive Director remuneration policyThe Non-executive Director remuneration policy enables the Company to attract and retain high-quality directorswith relevant experience. The remuneration policy is reviewed annually by the People and Culture Committee. Nonexecutive Director fees are set after consideration of fees paid by companies of comparable size, complexity, industry,and geography, and reflect the qualifications and experience necessary to discharge the Board’s responsibilities.The current Non-executive Director aggregate fee limit is $3,600,000 and was approved by the then shareholders of Colesat a general meeting held on 19 September 2018 prior to listing. There were no increases to Board and Committee fees inFY20.Table 9 sets out the Board and committee fees in Australian dollars (inclusive of superannuation) for FY20.Table 9 BOARD AND COMMITTEE FEESCHAIRMEMBERBoard$695,0001$220,000Audit and Risk Committee$55,000$27,000People and Culture Committee$55,000$27,000Nomination CommitteeNo feeNo fee 1 The Chairman of the Board does not receive Committee fees in addition to his Board fee.Coles Group Limited 2020 Annual Report935.3 FY20 Non-executive Director remunerationTable 10 outlines the remuneration for the Non-executive Directors of Coles during FY20. There were no loans between Nonexecutive Directors and the Company or any of its subsidiaries during FY20.Table 10 NAMEFINANCIALYEAR1BASE ANDCOMMITTEE FEES(EXCLUDINGSUPERANNUATION)OTHERBENEFITS4SUPERANNUATIONBENEFITSTOTALCOMPENSATIONJames Graham2020$673,997$1,273$21,003$696,2732019$416,344$131$15,399$431,874David Cheesewright22020$244,007–$2,993$ 247,0002019$149,111–$4,328$153,439Jacqueline Chow2020$225,997$1,088$21,003$248,0882019$140,329$187$13,110$153,626Abi Cleland32020$234,543$91$12,457$247,0912019$140,329–$13,110$153,439Richard Freudenstein32020$264,499–$10,501$ 275,0002019$157,401–$13,432$170,833Wendy Stops32020$231,248$1,191$15,752$248,1912019$140,329$109$13,110$153,548Zlatko Todorcevski2020$253,997$372$21,003$275,3722019$157,401$60$13,432$170,893TOTAL 2020$2,128,288$4,015$104,712$ 2,237,015TOTAL 2019$1,301,244$487$85,921$1,387,652 1 Details provided for FY19 cover the period from 19 November 2018 (the date from which each of the Non-executive Directors were appointed) to 30 June 2019.2 Due to Mr Cheesewright residing outside of Australia, superannuation obligations are only payable for any time worked in Australia.3 Approval was obtained from the ATO by individual Non-executive Directors to be exempt from making superannuation contributions due to superannuationobligations being met by other employers.4 Other benefits include costs associated with directorships (including any applicable fringe benefits tax).5.4 Other transactions and balancesDuring FY20, Mr Freudenstein sold livestock to Coles via a livestock agent for an aggregate amount of $65,832. Thetransaction occurred on an arm’s length basis with normal commercial terms.Coles Group Limited 2020 Annual Report94SECTION 6: ORDINARY SHAREHOLDINGS6.1 Non-executive Director Ordinary ShareholdingsTable 11 shows the shareholdings and movements in shares held directly, or indirectly, by each Non-executive Director,including their related parties during FY20.Table 11 NAMEBALANCE OFSHARES HELDAT 1 JULY 2019SHARESACQUIREDSHARESDISPOSEDCLOSINGBALANCEAS AT28 JUNE 2020James Graham460,18840,000–500,188David Cheesewright–20,000–20,000Jacqueline Chow20,000––20,000Abi Cleland1,81618,000–19,816Richard Freudenstein19,000––19,000Wendy Stops11,9108,090–20,000Zlatko Todorcevski19,201––19,201TOTAL532,11586,090–618,205 6.2 Executive KMP Ordinary ShareholdingsTable 12 shows the shareholdings and movements in shares held directly, or indirectly, by each Executive KMP, includingtheir related parties during FY20.Table 12 NAMEBALANCE OFSHARES HELDAT 1 JULY 2019SHARESACQUIREDSHARESDISPOSEDCLOSINGBALANCE ASAT 28 JUNE2020Steven Cain50,000––50,000Leah Weckert11,51110,8952–22,406Greg Davis40,042115,29121355,320Matthew Swindells605––605TOTAL102,15826,18613128,331 1 Mr Davis’ opening balance of Coles Ordinary Shares is 40,042. This differs to the closing balance disclosed in the FY19 Remuneration Report of 23,445, whichrepresented Ordinary Shares held directly by Mr Davis and did not include 16,597 Ordinary Shares held by Mr Davis’ related parties.2 Shares acquired by Ms Weckert are shares released from holding lock as referred to in Table 8.1. Shares acquired by Mr Davis include shares released fromholding lock as detailed in Table 8.1.95A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards LegislationErnst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/auAuditor’s Independence Declaration to the Directors of Coles Group LimitedAs lead auditor for the audit of the financial report of Coles Group Limited for the financial year ended28 June 2020, 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 inrelation to the audit; andb) no contraventions of 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 financialyear.Ernst & YoungFiona CampbellPartner18 August 2020A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards LegislationErnst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/auAuditor’s Independence Declaration to the Directors of Coles Group LimitedAs lead auditor for the audit of the financial report of Coles Group Limited for the financial year ended28 June 2020, 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 inrelation to the audit; andb) no contraventions of 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 financialyear.Ernst & YoungFiona CampbellPartner18 August 2020Coles Group Limited 2020 Annual Report96FinancialReportColes Group Limited 2020 Annual Report97Consolidated Financial StatementsStatement of Profit or LossStatement of Other Comprehensive IncomeStatement of Financial PositionStatement of Changes in EquityStatement of Cash FlowsNotes to the Consolidated Financial StatementsBasis of preparation and accounting policiesSignificant itemsSection 1: Performance1.1 Segment reporting1.2 Earnings per share1.3 Sales revenue1.4 Administration expenses1.5 Financing costs1.6 Income taxSection 2: Assets and liabilities2.1 Cash and cash equivalents2.2 Trade and other receivables2.3 Other assets2.4 Inventories2.5 Property, plant and equipment2.6 Intangible assets2.7 Leases2.8 Trade and other payables2.9 ProvisionsSection 3: Capital3.1 Interest-bearing liabilities3.2 Contributed equity and reserves3.3 Dividends paid and proposedSection 4: Financial risk4.1 Impairment of non-financial assets4.2 Financial risk management4.3 Financial instrumentsSection 5: Group structure5.1 Equity accounted investments5.2 Assets held for sale5.3 Discontinued operations5.4 Subsidiaries5.5 Parent entity informationSection 6: Unrecognised items6.1 Commitments6.2 Contingent liabilitiesSection 7: Other disclosures7.1 Related party disclosures7.2 Share-based payments7.3 Auditor’s remuneration7.4 Acquisitions7.5 New accounting standards and interpretations7.6 Events after the reporting periodDirectors’ DeclarationIndependent Auditor’s ReportColes Group Limited 2020 Annual Report98Statement of Profit or Lossfor the year ended 28 June 2020 CONSOLIDATEDNOTESYEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MContinuing operationsSales revenue1.337,40838,176Other operating revenue376288Total operating revenue37,78438,464Cost of sales(28,043)(29,253)Gross profit9,7419,211Other income108428Administration expenses1.4(8,081)(8,031)Other expenses–(146)Share of net (loss) / profit of equity accounted investments5.1(6)5Earnings before interest and tax (EBIT)1,7621,467Financing costs1.5(443)(42)Profit before income tax1,3191,425Income tax expense1.6(341)(347)Profit for the year from continuing operations9781,078Discontinued operationsProfit from discontinued operations after tax5.3–357Profit for the year9781,435Profit attributable to:Equity holders of the parent entity9781,435Earnings per share (EPS) attributable to equity holders of the parent:Basic and diluted EPS (cents)73.3107.6EPS attributable to equity holders of the parent from continuing operations:Basic and diluted EPS (cents)1.273.380.8 The accompanying notes form part of the consolidated financial statements.Coles Group Limited 2020 Annual Report99Statement of Other Comprehensive Incomefor the year ended 28 June 2020 CONSOLIDATEDNOTESYEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MProfit for the year9781,435Other comprehensive incomeItems that may be reclassified to profit or loss:Net movement in the fair value of cash flow hedges(17)(2)Income tax effect1.651Other comprehensive loss which may be reclassifiedto profit or loss in subsequent periods(12)(1)Total comprehensive income attributable to:Equity holders of the parent entity9661,434Total comprehensive income from continuing operations attributable to:Equity holders of the parent entity9661,077 The accompanying notes form part of the consolidated financial statements. Coles Group Limited 2020 Annual Report100 CONSOLIDATEDNOTES28 JUNE 2020$M30 JUNE 2019$MAssetsCurrent assetsCash and cash equivalents2.1992940Trade and other receivables2.2434360Inventories2.42,1661,965Income tax receivable42–Assets held for sale5.27594Other assets2.37047Total current assets3,7793,406Non-current assetsProperty, plant and equipment2.54,1274,119Right-of-use assets2.77,660–Intangible assets2.61,5971,541Deferred tax assets1.6849365Equity accounted investments5.1217212Other assets2.3120134Total non-current assets14,5706,371Total assets18,3499,777LiabilitiesCurrent liabilitiesTrade and other payables2.83,7373,380Provisions2.9861743Lease liabilities2.7885–Other198168Total current liabilities5,6814,291Non-current liabilitiesInterest-bearing liabilities3.11,3541,460Provisions2.9472598Lease liabilities2.78,198–Other2971Total non-current liabilities10,0532,129Total liabilities15,7346,420Net assets2,6153,357EquityContributed equity3.21,6111,628Reserves4342Retained earnings9611,687Total equity2,6153,357 The accompanying notes form part of the consolidated financial statements.Statement of Financial Positionas at 28 June 2020Coles Group Limited 2020 Annual Report101 ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENTCONTRIBUTEDEQUITY$MSHARE-BASEDPAYMENTSRESERVE$MCASH FLOWHEDGERESERVE$MRETAINEDEARNINGS$MTOTAL$MAt 1 July 20191,62843(1)1,6873,357Effect of adoption of AASB 16 Leases–––(831)(831)At 1 July 2019 (adjusted)1,62843(1)8562,526Net profit for the year–––978978Other comprehensive income––(12)–(12)Total comprehensive income for the year––(12)978966Share-based payments expense–13––13Purchase of shares under Equity IncentivePlan(17)–––(17)Dividends paid–––(873)(873)Balance as at 28 June 20201,61156(13)9612,615At 1 July 20182,19339–1,0183,250Net profit for the year–––1,4351,435Other comprehensive income––(1)–(1)Total comprehensive income for the year––(1)1,4351,434Capital return(538)–––(538)Share-based payments expense–4––4Purchase of shares under Equity IncentivePlan(27)–––(27)Distributions to Wesfarmers–––(766)(766)Balance as at 30 June 20191,62843(1)1,6873,357 The accompanying notes form part of the consolidated financial statements.Statement of Changes in Equityfor the year ended 28 June 2020Coles Group Limited 2020 Annual Report102 CONSOLIDATEDNOTESYEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MCash flows from operating activitiesReceipts from customers39,97141,126Receipt from Viva Energy–137Payments to suppliers and employees(36,486)(38,665)Interest paid(37)(33)Interest component of lease payments(399)–Interest received74Income tax paid(504)(294)Net cash flows from operating activities2.12,5522,275Cash flows used in investing activitiesPurchase of property, plant and equipment and intangibles(833)(1,104)Proceeds from sale of property, plant and equipment211288Proceeds from sale of controlled entities–544Net investments in joint venture and associate5.1(11)(6)Acquisition of subsidiaries or businesses, net of cash acquired(25)(2)Net cash flows used in investing activities(658)(280)Cash flows used in financing activitiesProceeds from borrowings5,12010,260Repayment of borrowings(5,226)(8,800)Proceeds from borrowings with related parties–170Repayment of borrowings with related parties–(3,678)Payment of principal component of lease payments(846)–Distributions to Wesfarmers–(320)Redemption of redeemable preference shares–1,322Dividends paid(873)–Capital return–(538)Purchase of shares under Equity Incentive Plan(17)(27)Net cash flows used in financing activities(1,842)(1,611)Net increase in cash and cash equivalents52384Cash at the beginning of the financial period2.1940556Cash at the end of the financial period2.1992940 The accompanying notes form part of the consolidated financial statements.Statement of Cash Flowsfor the year ended 28 June 2020Coles Group Limited 2020 Annual Report103The Financial Report of Coles Group Limited (‘the Company’) in respect of the Company and the entities it controlled atthe reporting date or during the year ended 28 June 2020 (collectively, ‘the Group’) was authorised for issue in accordancewith a resolution of the Directors on 18 August 2020.Reporting entityThe Company is a for-profit company limited by shares which is incorporated and domiciled in Australia and listed on theAustralian 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 policiesThe Financial Report is a general purpose financial report, which has been prepared in accordance with AustralianAccounting 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 InternationalAccounting Standards Board.The consolidated financial statements have been prepared on a historical cost basis except for certain financial instrumentsmeasured 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 financial year except for the adoption ofAASB 16 Leases (‘AASB 16’) from 1 July 2019 as described in Note 2.7 Leases.This Financial Report presents reclassified comparative information where required for consistency with current year’spresentation.Key judgements, estimates and assumptionsThe preparation of the financial statements requires judgement and the use of estimates and assumptions in applying theGroup’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 eventsActual 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 assetsor liabilities in future periods. The Group has incorporated specific judgements, estimates and assumptions relating to theexpected impact of the COVID-19 pandemic in determining the amounts recognised in the financial statements based onconditions existing at reporting date, recognising uncertainty still exists in relation to its timeframe, the measures to controlit and its economic impact.Notes to theConsolidated Financial StatementsColes Group Limited 2020 Annual Report104Basis of preparation and accounting policies (continued)The key areas involving judgement or significant estimates and assumptions are set out below: NOTEJUDGEMENTSNote 5.1 Equity accounted investmentsControl and significant influenceNote 2.7 LeasesDetermining the lease termNOTEESTIMATES AND ASSUMPTIONSNote 2.4 InventoriesNet realisable valueNote 2.4 InventoriesCommercial incomeNote 4.1 Impairment of non-financial assetsAssessment of recoverable amountNote 2.9 ProvisionsEmployee benefitsNote 2.9 ProvisionsSelf-insuranceNote 2.9 ProvisionsRestructuringNote 7.2 Share-based paymentsValuation of share-based paymentsNote 2.7 LeasesIncremental borrowing rate Detailed information about each of these judgements, estimates and assumptions is included in the Notes together withinformation about the basis of calculation for each affected line item in the financial statements.The NotesThe Notes include information which is required to understand the consolidated financial statements and is material andrelevant 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 performanceThe Notes are organised into the following sections:1. PERFORMANCE: this section provides information on the performance of the Group, including segment results, earningsper 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 impactthe 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 consolidatedfinancial statements but could potentially have a significant impact on the Group’s financial performance or positionin the future.7. OTHER DISCLOSURES: this section provides other disclosures required by Australian Accounting Standards that areconsidered relevant to understanding the Group’s financial performance or position.Coles Group Limited 2020 Annual Report105Basis of consolidationIn preparing these consolidated financial statements, subsidiaries are consolidated from the date the Group gains controluntil the date on which control ceases. The Group’s share of results of its equity accounted investments is included in theconsolidated financial statements from the date that significant influence or joint control commences until the date thatsignificant 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 consistentaccounting policies.Foreign currencyThese 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 monetaryassets and liabilities denominated in foreign currencies at reporting date exchange rates are generally recognised in profitor loss. They are deferred in equity if they relate to qualifying cash flow hedges.Accounting PoliciesAccounting policies that summarise the classification, recognition and measurement basis of financial statement line itemsand that are relevant to the understanding of the consolidated financial statements are provided throughout the Notes.Rounding of amountsThe amounts contained in the Financial Report have been rounded to the nearest million dollars (unless specifically statedto 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.Significant itemsSignificant items are large gains, losses, income, expenditures 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 Group. These items have beenhighlighted below to help users of the Financial Report understand the financial performance of the Group.Significant gains or income are included in ‘other income’, whilst significant losses or expenditures are included within‘other expenses’ or ‘income tax expense’ in the Statement of Profit or Loss.Tax consolidationThe Company and its 100% owned Australian resident subsidiaries formed an income tax consolidated group with effectfrom 31 December 2018. As disclosed in the Group’s FY19 Financial Report, the tax cost base of revenue and capitalassets were reset in accordance with Australian taxation legislation and calculated by reference to independent marketvaluations. In performing these valuations, certain judgements and assumptions were made such as future earnings anddiscount rates which were subject to review at a future date.Independent market valuations and tax cost base resetting calculations were progressed during the current year resultingin a $31 million net credit to income tax expense (2019: $50 million).Incorporated joint venture with Australian Venue Co.As disclosed in the Group’s FY19 Financial Report, the Company entered into an incorporated joint venture AVC for theoperation of Spirit Hotels (the ‘Hotel business’) and the retail liquor stores linked to Spirit Hotels venues (collectively the‘Retail Liquor business’). As part of the transaction, a group subsidiary company, Liquorland (Qld) Pty Ltd was convertedinto an incorporated joint venture company, QVC. To facilitate the transaction, QVC restructured its share capital by issuingtwo classes of shares: R-Shares which confer the right to the full economic benefit of the Retail Liquor business and H-Shareswhich confer the right to the full economic benefit of the Hotel business. The Company sold the H-shares to AVC, whileretaining the R-shares.The income tax impacts arising from the sale of the H-shares were progressed in the current year resulting in a $12 millionnet credit to income tax expense.Coles Group Limited 2020 Annual Report1061. Performance This section provides information on the performance of the Group, including segment results, earnings pershare and income tax. 1.1 Segment reportingThe Group has identified its operating segments based on internal reporting to the Managing Director and Chief ExecutiveOfficer (the chief operating decision maker). The Managing Director and Chief Executive Officer regularly reviews theGroup’s internal reporting to assess performance and allocate resources across the operating segments. The segmentsidentified offer different products and services and are managed separately.The Group’s reportable segments are set out below: REPORTABLE SEGMENTDESCRIPTIONSupermarketsFresh food, groceries and general merchandise retailing (includes Coles Online and ColesFinancial Services)LiquorLiquor retailing, including online delivery servicesExpressConvenience store operations and commission agent for retail fuel sales Other business operations that are not separately reportable (such as Property), as well as costs associated with enterprisefunctions (such as Treasury) are included in ‘other’.There are varying levels of integration between operating segments. This includes the common usage of property, servicesand administration functions. Financing costs and income tax are managed on a Group basis and are not allocated tooperating segments.EBIT is the key measure by which management monitors the performance of the segments.The Group does not have operations in other geographic areas or economic exposure to any individual customer that isin excess of 10% of sales revenue. SUPERMARKETS$MLIQUOR$MEXPRESS$MOTHER$MCONSOLIDATED$MYear ended 28 June 2020Sales revenue32,9933,3081,107–37,408Segment EBIT1,61813833(27)1,762Financing costs(443)Profit before income tax1,319Income tax expense(341)Profit for the year978Share of net loss of equity accountedinvestments included in EBIT(6)Year ended 30 June 2019Sales revenue30,9933,2053,978–38,176Segment EBIT1,19113346(27)1,343Significant items124Financing costs(42)Profit before income tax for continuing operations1,425Income tax expense for continuing operations(347)Profit for the year for continuing operations1,078Share of net profit of equity accountedinvestments included in EBIT5 Coles Group Limited 2020 Annual Report1071.2 Earnings per share (EPS) YEAR ENDED28 JUNE 2020YEAR ENDED30 JUNE 2019EPS attributable to equity holders of the Company from continuing operationsBasic and diluted EPS (cents)73.380.8Profit for the period from continuing operations ($M)9781,078Weighted average number of ordinary shares for basic and diluted EPS (shares, million)1,3341,334 Calculation methodologyEPS is profit for the period from continuing operations attributable to ordinary equity holders of the Company, divided bythe weighted average number of ordinary shares on issue during the year.Diluted EPS is calculated on the same basis except that it includes the impact of any potential commitments the Grouphas to issue shares in the future. For the period, the potential dilution to the weighted average number of ordinary sharesfrom employee performance rights was nil as shares are already issued and held by the Plan Trustee on behalf of theparticipants.Between the reporting date and the issue date of the Financial Report, there have been no transactions involving ordinaryshares or potential ordinary shares that would impact the calculation of EPS disclosed in the table above.1.3 Sales revenueSale of goodsThe Group operates a network of supermarkets, retail liquor stores and convenience stores, as well as online platforms.Revenue is recognised by the Group when it is the principal in the sales transaction. Revenue from the sale of goods isrecognised when control of the goods has transferred to the customer. For goods purchased in-store, control of the goodstransfers to the customer at the point of sale. For goods purchased online, control of the goods transfers to the customerupon delivery, or when collected by the customer.Revenue comprises the fair value of consideration received or receivable for the sale of goods and is recorded net ofdiscounts and goods and services tax (GST).1.4 Administration expenses CONSOLIDATEDYEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MEmployee benefits expense4,7684,533Occupancy and overheads5971,635Depreciation and amortisation1,495640Marketing expenses216213Impairment (reversal) / expense(41)42Other store expenses659651Other administration expenses387317Total administration expenses8,0818,031 Coles Group Limited 2020 Annual Report1081.4 Administration expenses (continued)Employee benefits expense includes the following: CONSOLIDATEDYEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MRemuneration, bonuses and on-costs4,3874,155Superannuation expense355346Share-based payments expense2632Total employee benefits expense4,7684,533 Employee benefits expenseThe Group’s accounting policy for liabilities associated with employee benefits is set out in Note 2.9 Provisions. The policyrelating to share-based payments is set out in Note 7.2 Share-based payments.Share-based payments expense includes both awards granted by the Company that will be settled in equity of theCompany and awards granted by Wesfarmers (pre demerger) to employees of the Group that will be settled in equity ofWesfarmers.Retirement benefit obligationsThe Group contributes to a number of superannuation funds on behalf of its employees, and the Group’s legal orconstructive obligation is limited to these contributions. Contributions payable by the Group are recognised as an expensein the Statement of Profit or Loss when incurred.1.5 Financing costs CONSOLIDATEDYEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MInterest expense3230Imputed interest on lease liabilities399–Discount rate adjustment37Other finance related costs95Total financing costs44342 Financing costsFinancing costs consist of interest and other costs incurred in connection with the borrowing of funds, imputed intereston lease liabilities as well as the discount rate adjustments associated with non-current provisions (excluding employeebenefits). Financing costs directly attributable to the acquisition, construction or production of an asset, that necessarilytakes more than 12 months to get ready for its intended use or sale, are capitalised as part of the cost of the asset. All otherfinancing costs are expensed in the period in which they are incurred.1.6 Income taxThe major components of income tax expense in the consolidated Statement of Profit or Loss are set out below: CONSOLIDATEDYEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MCurrent income tax expense461429Adjustment in respect of current income tax of previous years(5)8Deferred income tax relating to origination and reversal of temporary differences(79)(86)Adjustment in respect of deferred income tax of previous years(36)(4)Income tax expense reported in Statement of Profit or Loss341347 Coles Group Limited 2020 Annual Report109The components of income tax expense recognised in the consolidated Statement of Other Comprehensive Income (OCI)are set out below: CONSOLIDATEDYEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MDeferred tax related to items recognised in OCI during the year:Net loss on revaluation of cash flow hedges51Deferred income tax charged to OCI51 The tax expense included in the Statement of Profit or Loss consists of current and deferred income tax. CURRENT INCOME TAX IS:DEFERRED INCOME TAX IS:• the expected tax payable on taxable income for theyear• calculated using tax rates enacted or substantivelyenacted at the reporting date• inclusive of any adjustment to income tax payable orrecoverable in respect of previous years• recognised using the liability method• based on temporary differences between the carryingamounts of assets and liabilities for financial reportingpurposes and the amounts for taxation purposes• calculated using the tax rates that are expected toapply in the period when the liability is settled or theasset realised, based on the tax rates that have beenenacted or substantively enacted by the reporting date Both current and deferred income tax are charged or credited to the Statement of Profit or Loss. However, when it relatesto items charged or credited directly to the Statement of Changes in Equity or Statement of Other Comprehensive Income,the tax is recognised in equity, or OCI, respectively.Reconciliation of the Group’s applicable tax rate to the effective tax rate CONSOLIDATEDYEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MProfit before tax from continuing operations1,3191,425Profit before tax from discontinued operations–509Profit before income tax1,3191,934At Australia’s corporate tax rate of 30.0% (30 June 2019: 30.0%)396580Adjustments in respect of income tax of previous years24Share of results of joint venture2(1)Non-deductible expenses for income tax purposes515Non-assessable income for income tax purposes(21)–Significant item – tax consolidation(31)(50)Significant item – incorporated joint venture with Australian Venue Co.(12)(49)At the effective income tax rate of 25.9% (30 June 2019: 25.8%)341499Income tax expense reported in the consolidated Statement of Profit or Loss341347Income tax attributable to discontinued operations–152341499 Tax consolidationThe Company and its 100% owned Australian resident subsidiaries formed an income tax consolidated group with effectfrom 31 December 2018.The Company is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing agreementwhich operates to manage joint and several liability for group tax liabilities amongst group members as well as enable groupmembers to leave the group clear of future group tax liabilities. Members of the group have also entered into a taxation fundingagreement which provides that each member of the tax consolidated group pay a tax equivalent amount to or from the parentin accordance with their notional current tax liability or current tax asset. Such amounts are reflected in amounts receivable fromor payable to the parent company in their accounts and are settled as soon as practicable after lodgement of the consolidatedtax return and payment of the tax liability.Coles Group Limited 2020 Annual Report1101.6 Income tax (continued)Deferred income tax balances recognised in the consolidated Statement of Financial Position CONSOLIDATED28 June 2020OPENINGBALANCE$MEFFECT OFADOPTIONOF AASB 16$MCHARGEDTO PROFITOR LOSS$MCREDITEDTO OCI$MACQUISITIONS$MCLOSINGBALANCE$MProvisions92(34)(3)–156Employee benefits215–34––249Trade and other payables15–19––34Inventories41–4––45Property, plant and equipment127–12––139Lease Liabilities–2,68135–92,725Cash flow hedges1––5–6Other individually insignificantbalances22(18)15––19Deferred tax assets5132,6291165103,273Accelerated depreciation fortax purposes88–8––96Intangible assets7–(24)––(17)Right-of-use assets–2,2808–92,297Other individually insignificantbalances53(7)2––48Deferred tax liabilities1482,273(6)–92,424Net deferred tax assets36535612251849 CONSOLIDATED30 June 2019OPENINGBALANCE$MCHARGEDTO PROFITOR LOSS$MCREDITEDTO OCI$MACQUISITIONS/(DISPOSALS)$MCLOSINGBALANCE$MProvisions8048–(36)92Employee benefits2777–(69)215Trade and other payables12(3)–615Inventories65(2)–(22)41Property, plant and equipment241(2)–(112)127Cash flow hedges––1–1Other individually insignificantbalances492–(29)22Deferred tax assets724501(262)513Accelerated depreciation fortax purposes5930–(1)88Intangible assets70(57)–(6)7Other individually insignificantbalances55(3)–153Deferred tax liabilities184(30)–(6)148Net deferred tax assets540801(256)365 Coles Group Limited 2020 Annual Report111Tax assets and liabilitiesDeferred tax assets are recognised to the extent it is probable that taxable profits will be available against which deductibletemporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date andreduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of theassets to be recovered.Deferred tax assets and liabilities are offset against each other when there is a legally enforceable right to set off currenttaxation assets against current taxation liabilities and it is the intention to settle these on a net basis.The Group has unrecognised deferred tax assets largely relating to deductible temporary differences arising from itsinvestment in Loyalty Pacific Pty Ltd (operator of the flybuys loyalty program) and QVC. A deferred tax asset has not beenrecognised for this item because the Group has determined that at the reporting date, it is not probable that eligiblecapital gains will be available against which the Group can utilise these benefits. The unrecognised deferred tax asset is$112 million (2019: $55 million).An uncertain tax treatment is any tax treatment applied by the Group where there is uncertainty over whether it willbe accepted by the relevant tax authority. If it is not probable that the treatment will be accepted, the effect of theuncertainty is reflected in the period in which that determination is made (for example, by recognising an additionaltax liability). The Group measures the impact of the uncertainty using the method that best predicts the resolution of theuncertainty: either the most likely amount method or the expected value method. The judgements and estimates made torecognise and measure the effect of uncertain tax treatments are reassessed whenever circumstances change or whenthere 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 28 June 2020 willbe 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 taxationauthority, in which case GST is recognised as part of the revenue or the expense item or as part of the cost of acquisitionof 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 payablesin the Statement of Financial Position. Commitments and contingencies are disclosed net of the amount of GST recoverablefrom or payable to the taxation authority.Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising frominvesting and financing activities where recoverable or payable to the taxation authority is classified as part of operatingcash flows.Coles Group Limited 2020 Annual Report1122. Assets and liabilities This section details the assets used in the Group’s operations and the liabilities incurred as a result. 2.1 Cash and cash equivalentsCash and cash equivalents are comprised of the following: CONSOLIDATED28 JUNE 2020$M30 JUNE 2019$MCash on hand and in transit540530Cash at bank and on deposit452410Total cash and cash equivalents992940 All receivables from EFT, credit card and debit card point of sale transactions during the period are classified as cash andcash equivalents.For the purpose of the Statement of Cash Flows, cash and cash equivalents includes cash on hand and in transit, at bankand on deposit, net of outstanding bank overdrafts which are repayable on demand.Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits earn interest at therespective short-term deposit rates.Reconciliation of profit for the period to net cash flows from operating activities CONSOLIDATEDYEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MProfit for the period9781,078Adjustments for:Depreciation and amortisation1,495640(Impairment reversals) / impairment and write-off of non-current assets(41)42Net gain on sale of controlled entities–(133)Net loss on disposal of non-current assets395Share of loss / (profit) of equity accounted investments6(5)Share-based payments expense134Other–(4)Changes in assets and liabilities net of the effects of acquisitions and disposals ofbusinesses and impacts of AASB 16:(Increase) / decrease in inventories(201)137Increase in trade and other receivables(78)(45)Increase in prepayments(20)(1)Increase in other assets(4)(11)Increase in deferred tax assets(121)(91)(Increase) / decrease in income tax receivable(42)143Increase / (decrease) in trade and other payables339(9)Increase in provisions138586Increase / (decrease) in other liabilities51(61)Net cash flows from operating activities2,5522,275 Coles Group Limited 2020 Annual Report1132.2 Trade and other receivablesTrade and other receivables are comprised of the following: CONSOLIDATED28 JUNE 2020$M30 JUNE 2019$MTrade receivables1314226Other receivables130142444368Allowance for expected credit losses(10)(8)Total trade and other receivables434360 1 Includes commercial income due from suppliers of $140 million (2019: $102 million).Trade receivables and other receivables are classified as financial assets held at amortised cost.Trade receivablesTrade receivables are initially recognised at the amount due and subsequently at amortised cost using the effectiveinterest method, less an allowance for expected credit losses (impairment provision). The carrying value of trade andother receivables, less impairment provisions, is considered to approximate fair value, due to the short-term nature of thereceivables.Impairment of trade receivablesThe collectability of trade and other receivables is reviewed on an ongoing basis. Individual debts which are known to beuncollectable are written off when identified.The Group recognises an impairment provision based upon anticipated lifetime losses of trade receivables. The anticipatedlifetime losses are determined with reference to historical experience and are regularly reviewed and updated.The amount of the impairment loss is recognised in the Statement of Profit or Loss within ‘administration expenses’.2.3 Other assetsOther assets are comprised of the following: CONSOLIDATED28 JUNE 2020$M30 JUNE 2019$MPrepayments6946Other assets11Total other current assets7047Prepayments2124Other assets99110Total other non-current assets120134 Coles Group Limited 2020 Annual Report1142.4 InventoriesInventories comprise goods held for resale and are valued at the lower of cost and net realisable value, which is theestimated selling price less estimated costs to sell.The cost of inventory is based on purchase cost, after deducting certain types of commercial income and includinglogistics 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 Statement of Profit or Loss when theinventory is sold. Key estimate: Net realisable valueAn inventory provision is recognised where the realisable value from sale of inventory is estimated to be lower thanthe inventory’s carrying value. Inventory provisions for different product categories are estimated based on variousfactors, including expected sales profile, prevailing sales prices, seasonality and expected losses associated withslow-moving inventory items. Commercial incomeCommercial 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 productDepending on the type of arrangement with the supplier, commercial income will either be deducted from the cost ofinventory (where it relates to the purchase of inventory) or recognised as a reduction in related expenses (where it relatesto the sale of goods).Amounts due from suppliers are recognised within trade receivables, except in cases where the Group currently hasthe legal right and the intention to offset, in which case only the net amount receivable or payable is presented. Refer toNote 4.3 Financial instruments for details of amounts offset in the consolidated Statement of Financial Position. Key estimate: Commercial incomeThe recognition of certain types of commercial income requires the following estimates:• the volume of inventory purchases that will be made during a specific period• the amount of the related product that will be sold• the balance remaining in inventory at the reporting date.Estimates are based on historical and forecast sales and inventory turnover levels. 2.5 Property, plant and equipmentProperty, plant and equipment is carried at cost less accumulated depreciation and any recognised impairment. Costcomprises expenditure that is directly attributable to the acquisition of the item and subsequent costs incurred that areeligible for capitalisation. Repairs and maintenance costs are charged to the Statement of Profit or Loss during the periodin which they are incurred. Property, plant and equipment is depreciated on a straight-line basis to its residual value overits expected useful life.Coles Group Limited 2020 Annual Report115 LAND$MBUILDINGS$MPLANT &EQUIPMENT$MLEASEHOLDIMPROVEMENTS$MTOTAL$MUseful life (range)Not applicable20 – 40 years3 – 20 yearsTerm of leaseAt 28 June 2020Cost4132406,6531,0548,360Accumulated depreciation and impairment–(9)(3,644)(580)(4,233)Net carrying amount4132313,0094744,127Carrying amount at beginning of the financial year4722512,9474494,119Additions105761596778Transfer to assets held for sale(27)(13)(6)–(46)Depreciation–(3)(469)(71)(543)Impairment reversal44–(1)–43Disposals and write-offs1(86)(61)(77)–(224)Carrying amount at end of the financial year4132313,0094744,127Construction work in progress included above–8248380645At 30 June 2019Cost4722606,2459687,945Accumulated depreciation and impairment–(9)(3,298)(519)(3,826)Net carrying amount4722512,9474494,119Carrying amount at beginning of the financial year6283353,8014595,223Additions6064864881,076Transfers between classes––10414Transfer to assets held for sale(69)(10)(14)(1)(94)Depreciation–(6)(533)(68)(607)Impairment(38)–(4)–(42)Disposals and write-offs1(109)(132)(1,177)(33)(1,451)Carrying amount at end of the financial year4722512,9474494,119Construction work in progress included above–9234557494 1 Net loss on disposal of property, plant and equipment during the year was $39 million (2019: $5 million net loss)Coles Group Limited 2020 Annual Report1162.6 Intangible assetsThe Group’s intangible assets comprise licences, software and goodwill.Licences and softwareLicences and software are measured initially at acquisition cost or costs incurred to develop the asset. Intangible assetsacquired 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 impairmentlosses. They are amortised on a straight-line basis over their estimated useful lives. Intangible assets with indefinite usefullives are not amortised. Instead they are tested for impairment annually or more frequently if events or changes incircumstances 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 linewith business continuity requirements.For internally generated software, research costs are expensed as incurred. Development expenditure is capitalised whenmanagement has the intention to develop the asset, it is probable that future economic benefits will flow to the Group andthe cost can be reliably measured.GoodwillGoodwill recognised by the Group has arisen as a result of business combinations and represents the future economicbenefits 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 ofthe individual assets and liabilities acquired. Goodwill is considered to have an indefinite useful economic life. It is thereforenot amortised but is instead tested annually for impairment, or more frequently if events or changes in circumstancesindicate that it might be impaired. Goodwill is carried at cost less any accumulated impairment losses and, for the purposeof impairment testing, is allocated to cash generating units.Refer to Note 4.1 Impairment of non-financial assets for further details on impairment testing.Coles Group Limited 2020 Annual Report117 GOODWILL$MBRANDS$MSOFTWARE$MLICENCES$MOTHER$MTOTAL$MUseful life (range)Not applicableIndefnite5 yearsIndefnite2 yearsAt 28 June 2020Cost1,153–1,3322832,516Accumulated amortisation and impairment––(918)(1)–(919)Net carrying amount1,153–4142731,597Carrying amount at beginning of the financial year1,153–36226–1,541Additions––14513149Impairment––(2)––(2)Amortisation––(91)––(91)Carrying amount at end of the financial year1,153–4142731,597Development work in progress included above––186––186At 30 June 2019Cost1,153–1,19127–2,371Accumulated amortisation and impairment––(829)(1)–(830)Net carrying amount1,153–36226–1,541Carrying amount at beginning of the financial year1,193100517156–1,966Additions1–87––88Transfers between classes––(14)––(14)Disposals and write-offs(41)(100)(104)(130)–(375)Amortisation––(124)––(124)Carrying amount at end of the financial year1,153–36226–1,541Development work in progress included above––82––82 Coles Group Limited 2020 Annual Report1182.7 LeasesThe Group has lease agreements for properties and various items of machinery, vehicles and other equipment used inits operations.Set out below are the carrying amounts of recognised right-of-use assets and movements during the period: CONSOLIDATEDPROPERTYLEASES$MNONPROPERTYLEASES$MTOTAL$MAs at 1 July 20197,3391427,481Additions11,024161,040Depreciation expense(822)(39)(861)At 28 June 20207,5411197,660 1 Includes reasonably certain options, remeasurements and new leases, net of leases terminated.Set out below are the carrying amounts of recognised lease liabilities and movements during the period: CONSOLIDATED$MAs at 1 July 20198,856Additions11,073Accretion of interest399Payments(1,245)At 28 June 20209,083Current885Non-current8,198 1 Includes reasonably certain options, remeasurements and new leases, net of leases terminated.The maturity analysis of lease liabilities is disclosed in Note 4.2 Financial risk management.Variable lease payments based on salesSome of the Group’s retail property lease agreements contain variable payment terms that are linked to sales. These leasepayments are based on a percentage of sales recorded by a particular store. The specific percentage rent adjustmentmechanism varies by individual lease agreement. Variable payment terms are used for a variety of reasons, including minimisingthe fixed costs base for newly established stores. Variable lease payments are recognised in profit or loss in the period in whichthe condition that triggers those payments occurs and are generally payable for future periods in the lease term.The following provides information on the Group’s variable lease payments, including the magnitude in relation to fixedpayments: CONSOLIDATED28 June 2020FIXEDPAYMENTS$MVARIABLEPAYMENTS$MTOTALPAYMENTS$MLeases with lease payments based on sales51139550 Coles Group Limited 2020 Annual Report119Extension optionsExtension options are included in the majority of property leases across the Group. Where practicable, the Group seeks toinclude extension options when negotiating leases to provide flexibility and align with business needs. Leases may containmultiple 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 assessingif 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 importanceof the site. Where a lease contains multiple extension options, only the next option is considered in the assessment. Optionperiods range from one to 15 years.Details of the Group’s extension options as at 28 June 2020 are set out below: Leases with extension options73%Leases without extension options27%Total leases100% Of the leases with extension options: Leases with an extension option included in the lease liability32%1Leases with an extension option not included in the lease liability68%Total leases with extension options100% 1 50% of these leases contain one or more future extension options not included in the lease liability.The following amounts have been recognised in the Statement of Profit or Loss: CONSOLIDATED28 JUNE 2020$MDepreciation of right-of-use assets861Interest expense on lease liabilities399Expenses relating to short-term leases (included in administration expenses)7Variable lease payments (included in administration expenses)48Total amount recognised in the Statement of Profit or Loss1,315 The Group recognised a total gain of $14 million relating to six sale and leaseback transactions during the year.The Group had total cash outflows for leases of $1,245 million during the year. The future cash outflows relating to leasesthat have not yet commenced are disclosed in Note 6.1 Commitments.Policy applicable from 1 July 2019The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys theright to control the use of an identified asset for a period of time in exchange for consideration.Group as lesseeThe Group applies a single recognition and measurement approach for all leases, except for short-term leases (leaseswith a term of 12 months or less) and leases of low-value assets. The Group recognises lease liabilities to make futurelease payments and right-of-use assets representing the right to use the underlying assets. A right-of-use asset and acorresponding lease liability are recognised at the date at which 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 theStatement of Profit or Loss 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 leasesof low-value assets are recognised on a straight-line basis in the Statement of Profit or Loss.Cash payments for the principal portion of the lease liability are presented within financing activities in the Statement ofCash Flows, while payments relating to short-term leases, low-value assets and variable lease components not included inthe measurement of the lease liability are presented within cash flows from operating activities.Coles Group Limited 2020 Annual Report1202.7 Leases (continued)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’sincremental 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 nonfinancial assets. Key estimate: Incremental borrowing rateIf the Group cannot readily determine the interest rate implicit in the lease, it uses its incremental borrowing rate(IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over asimilar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-useasset in a similar economic environment.The IBR requires estimation when no observable rates are available or when adjustments need to be made toreflect the terms and conditions of the lease. The Group estimates the IBR using observable market inputs whenavailable and is required to make certain estimates specific to the Group (such as credit risk). Key judgement: Determining the lease termExtension options are included in the majority of property leases across the Group. In determining the lease term,all facts and circumstances that create an economic incentive to exercise an extension option are considered.Extension options are only included in the lease term if the lease is reasonably certain to be exercised. Theassessment is reviewed if a significant event or change in circumstance occurs which affects this assessment andis within the control of the lessee.Changes in the assessment of the lease term are accounted for as a reassessment of the lease liability at the dateof the change. Coles Group Limited 2020 Annual Report121Group as lessorThe Group leases out some of its freehold properties and sub-leases some of its right-of-use assets. The Group has classifiedthese 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: CONSOLIDATED28 JUNE 2020$M30 JUNE 2019$MWithin one year2015Between one and two years1613Between two and three years1511Between three and four years1010Between four and five years55More than five years81Total7455 Rental income is accounted for on a straight-line basis over the lease term and is included in ‘other operating revenue’ inthe Statement of Profit or Loss. Initial direct costs incurred in negotiating and arranging an operating lease are added tothe carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Variablelease income not dependent on an index or rate is recognised as revenue in the period in which it is earned. The Grouprecognised income of $17 million for the year with respect to subleasing of its right-of-use assets.2.8 Trade and other payablesTrade and other payables are comprised of the following: CONSOLIDATED28 JUNE 2020$M30 JUNE 2019$MTrade payables2,8982,662Other payables839718Total trade and other payables3,7373,380 Trade payables are non-interest-bearing and are recognised initially at fair value and subsequently measured at amortisedcost using the effective interest method.2.9 Provisions CONSOLIDATED28 JUNE 2020$M30 JUNE 2019$MCurrentEmployee benefits746601Restructuring provision618Lease provision–7Self-insurance liabilities100108Other99Total current provisions861743Non-currentEmployee benefits8987Restructuring provision127150Lease provision–105Self-insurance liabilities256256Total non-current provisions472598 Coles Group Limited 2020 Annual Report1222.9 Provisions (continued)Movements in restructuring, leases, self-insurance and other provisions RESTRUCTURING$MLEASE$MSELFINSURANCE$MOTHER$MTOTAL$MAt 30 June 20191681123659654Effect of adoption of AASB 16 Leases(34)(112)––(146)At 1 July 2019134–3659508Arising during the year19–1176142Utilised(22)–(112)(6)(140)Unused amounts reversed––(24)–(24)Unwind / changes in discount rate2–10–12At 28 June 2020133–3569498Current6–1009115Non-current127–256–383 Coles Group Limited 2020 Annual Report123Provisions are:• recognised when the Group has a legal or constructive obligation as a result of a past event, it is probable that cashwill 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 recognisedas a financing cost in the Statement of Profit or Loss. PROVISIONKEY ESTIMATESEmployee benefitsProvisions for employee entitlements to annual leave, long serviceleave and employee incentives (where the Group do not have anunconditional right to defer payment for at least twelve months afterthe reporting date) are recognised within the current provision foremployee benefits, and represent the amount which the Group has apresent obligation to pay, resulting from employees’ services up to thereporting date.All other short-term employee benefit obligations are presented aspayables.Liabilities for long service leave where the Group have an unconditionalright to defer payment for at least twelve months after the reportingdate are recognised within the non-current provision for employeebenefits.Employee benefits provisions are based ona number of estimates including, but notlimited to:• expected future wages and salaries• attrition (applicable to long serviceleave provisions only)• discount rates• expected salary related payments,interest and on-costs following a reviewof the pay arrangements for awardcovered salaried team membersRestructuringRestructuring provisions are recognised when restructuring has eithercommenced or has raised a valid expectation in those affected, andthe 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 activitiesRestructuring provisions are based on anumber of estimates including, but notlimited to:• number of employees impacted• employee tenure and costs• restructure timeframes• discount ratesSelf-insuranceThe Group is self-insured for workers compensation and general liabilityrisks. The Group seeks external actuarial advice in determining selfinsurance provisions. Provisions are discounted and are based onclaims reported and an estimate of claims incurred but not reported.These estimates are reviewed bi-annually, and any reassessment ofthese estimates will impact self-insurance expense.Self-insurance provisions are based on anumber of estimates including, but notlimited to:• discount rates• future inflation• average claim size• claims development• risk margin Coles Group Limited 2020 Annual Report1243. Capital This section provides information relating to the Group’s capital structure and financing. The Group’s capital management strategy aims to ensure the Group has continued access to funding for current andfuture business activities by maintaining a mix of equity and debt financing, while maximising returns to shareholders.The Group’s objective is to maintain an investment grade credit rating to optimise the weighted average cost of capitalover 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’sstrategic objectives• amount of ordinary dividends paid to shareholders• raising and returning capital.3.1 Interest-bearing liabilities CONSOLIDATED28 JUNE 2020$M30 JUNE 2019$MNon-currentBank debt7581,460Capital market debt596–Total non-current interest-bearing liabilities1,3541,460 On 6 November 2019, Coles issued $600 million unsecured fixed rate Australian dollar medium term notes (Notes), comprising$300 million of seven-year Notes and $300 million of 10-year Notes. The seven-year Notes were priced with a coupon of2.20% and the 10-year Notes were priced with a coupon of 2.65%.In addition to the capital market debt, the Group is funded through a number of revolving multi-option and term loanfacilities. These bilateral bank loan facilities in aggregate total $3,300 million (‘Coles facilities’). The Coles facilities have thefollowing maturities: $750 million in November 2021, $1,290 million in November 2022, $1,110 million in November 2023 and$150 million in November 2025. At 28 June 2020, $610 million of the facilities maturing in November 2023 were drawn andthe November 2025 facility was fully drawn.Interest-bearing loans and borrowings are initially recorded at fair value, net of attributable transaction costs. Subsequentto initial recognition, interest-bearing loans and borrowings are measured at amortised cost using the effective interestmethod. Gains and losses are recognised in the Statement of Profit or Loss when the liabilities are derecognised.3.2 Contributed equity and reserves ORDINARY SHARESNo. (millions)$MAt 30 June 20191,3341,628Acquisition of shares on-market under Equity Incentive Plan–(17)At 28 June 20201,3341,611 Ordinary sharesOrdinary shares on issue are classified as equity, are fully paid and carry one vote per share and the right to dividends.Incremental costs directly attributable to the issue of new shares are recognised as a deduction from equity, net of anyrelated income tax benefit.Cash flow hedge reserveThe hedging reserve records the portion of the gain or loss on a cash flow hedging instrument that is determined to be inan effective hedge relationship. The effective portion of the gain or loss on the hedging instrument is recognised in theStatement of Other Comprehensive Income within the cash flow hedge reserve, while any ineffective portion is recognisedimmediately in the Statement of Profit or Loss.Coles Group Limited 2020 Annual Report125Share-based payments reserveThe share-based payments reserve reflects the fair value of awards recognised as an expense in the Statement of Profit or Loss.3.3 Dividends paid and proposedThe Company considers current earnings, future cash flow requirements, targeted credit metrics and availability of frankingcredits in determining the amount of dividends to be paid.Dividends are recognised as a liability in the Statement of Financial Position in the period in which they are determined bythe Board. CENTS PER SHARETOTAL $M28 JUNE202030 JUNE201928 JUNE202030 JUNE2019Determined and paid during the periodPaid final dividend (30% franked)24.0nil320nilPaid special dividend (30% franked)11.5nil154nilPaid interim dividend (30% franked)30.0nil399nil65.5–873–Proposed and unrecognised at reporting date1Final dividend proposed and unrecognisedat reporting date (30% franked)27.524.0367320Special dividend proposed unrecognisedat reporting date (30% franked)–11.5–15427.535.5367474 1 Estimated final dividend payable, subject to variations in the number of shares up to the record date.During the year, the Company established a Dividend Reinvestment Plan (DRP) under which eligible holders of ordinaryshares are able to reinvest all or part of their dividend payments into additional fully paid Coles Group Limited shares.Franking account YEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MTotal franking credits available for subsequent financial years basedon a tax rate of 30% (2019: 30%)408277 Coles Group Limited 2020 Annual Report1264. Financial risk This section details the Group’s exposure to various financial risks, explains how these risks may impact theGroup’s financial performance or position, and details the Group’s approach to managing these risks. 4.1 Impairment of non-financial assetsThe Group tests property, plant and equipment and intangible assets for impairment to ensure they are not carried abovetheir 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, therecoverable amount of the cash generating unit (CGU) to which the asset belongs. CGUs are the lowest levels at whichassets are grouped and generate separately identifiable cash inflows. The recoverable amount, measured at the asset orCGU level, is the higher of fair value less costs of disposal (FVLCOD), or value in use (VIU). A discounted cash flow modelis used to determine the recoverable amount under both FVLCOD and VIU. FVLCOD is based on a market participantapproach and is estimated using assumptions that a market participant would use when pricing the asset or CGU. VIU isdetermined by discounting the future cash flows expected to be generated from the continuing use of an asset or CGU.Coles Group Limited 2020 Annual Report127 Key estimate: Assessment of recoverable amountFVLCOD valuations are considered Level 3 in the fair value hierarchy due to the use of unobservable inputs inthe calculation. The assumptions represent management’s assessment of future trends in the industry and havebeen based on historical data from both external and internal sources. VIU calculation represent management’sbest estimate of the economic conditions that will exist over the remaining useful life of the asset or CGU in itscurrent condition.Both FVLCOD and VIU calculations use judgements and estimates. In particular, significant judgements andestimates are made in relation to the following:Forecast future cash flowsForecast future cash flows are based on the Group’s latest Board approved internal five-year forecasts andreflect management’s best estimate of income, expenses, capital expenditure and cash flows for each asset orCGU. Internal forecasts have considered the potential future impacts of the COVID-19 pandemic on income andexpenses. Changes in selling prices and direct costs are based on past experience and management’s expectationof future changes in the markets in which the Group operates.In addition, consideration has been given to the potential financial impacts of climate change related risks on thecarrying value of goodwill through a qualitative review of the Group’s climate change risk assessment. This reviewdid not identify any material financial reporting impacts.When calculating the FVLCOD of an asset or CGU, future forecast cash flows also incorporates reasonably availablemarket participant assumptions such as enhancement capital expenditure.Discount ratesEstimated future cash flows are discounted to their present value using discount rates that reflect the Group’sweighted average cost of capital, adjusted for risks specific to the asset or CGU. The rates have been calculated inconjunction with independent valuation experts.Expected long-term growth ratesCash flows beyond the five-year period are extrapolated using estimated long-term growth rates. The growth ratesare based on historical performance as well as expected long-term market operating conditions specific to eachasset or CGU and are consistent with long-term average industry growth rates. Growth rates have been calculatedwith the assistance of independent valuation experts.The judgements and estimates used in assessing impairment are best estimates based on current and forecastmarket conditions and are subject to change in the event of shifting economic and operational conditions. Actualcash flows may therefore differ from forecasts and could result in changes to impairment recognised in future years. For the year ended 28 June 2020, a net impairment reversal for non-financial assets of $41 million was recognised, ofwhich $44 million ($52 million reversal offset by $8 million impairment expense) relates to the Group’s property portfolio. Theimpairment reversal arose from the disposal of a number of the Group’s properties during the year to the extent that animpairment loss had previously been recognised with respect to the properties disposed.The net impairment is included in ‘administration expenses’ in the Statement of Profit or Loss as it relates to the day-to-daymanagement of the Group’s freehold property portfolio (included within ‘other’ for segment reporting purposes).For the year ended 30 June 2019, net impairment of non-financial assets of $42 million was recognised for the Group, ofwhich $38 million ($88 million offset by $50 million reversal) relates to the Group’s property portfolio. This has been includedin ‘administration expenses’ in the Statement of Profit or Loss and within ‘other’ for segment reporting purposes.Recognised impairmentAn impairment loss is recognised in the Statement of Profit or Loss if the carrying amount of an asset or a CGU exceeds itsrecoverable amount. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amountof any goodwill allocated to the CGU and then to reduce the carrying amount of other assets in the CGU.Coles Group Limited 2020 Annual Report1284.1 Impairment of non-financial assets (continued)Reversal of impairmentWhere there is an indication that previously recognised impairment losses may no longer exist or may have decreased, theasset is re-tested for impairment. The impairment loss is reversed only to the extent that the carrying amount of the assetdoes not exceed the carrying amount that would have been determined, net of depreciation or amortisation, had noimpairment loss been recognised. Impairments recognised for goodwill are not reversed.Goodwill impairment testingFor the purpose of impairment testing, goodwill is allocated to CGUs or groups of CGUs according to the level at whichmanagement monitors goodwill. The FVLCOD valuation methodology was applied to determine the recoverable amountof CGUs.The following table presents a summary of the goodwill allocation and the key assumptions used in determining therecoverable amount of each CGU: 28 JUNE 2020SUPERMARKETSLIQUOREXPRESSGoodwill allocation ($M)98312545Indefinite life intangible assets ($M)–27–Post-tax discount rate (%)8.18.18.4Growth rate (%)3.03.02.0 For the year ended 30 June 2019, goodwill and indefinite life intangibles were allocated to CGUs on a consistent basis. Apost-tax discount rate of 8.3% and a growth rate of 3.0% for Supermarkets and Liquor were applied, along with a post-taxdiscount rate of 8.6% and a growth rate of 2.0% for Express. The growth rates applied for FY20 are consistent with thoseapplied in FY19 and in line with long-term average industry growth rates for each CGU.Sensitivity analysis is performed to determine the point at which the recoverable amount is equal to the carrying amountfor each CGU. For the Group’s CGUs, based on current economic conditions and CGU performance, no reasonablypossible change in a key assumption used in the determination of the recoverable value is expected to result in a materialimpairment.4.2 Financial risk management The following note outlines the Group’s exposure to and management of financial risks. These arise fromthe Group’s requirement to access financing (bank loans and overdrafts), from the Group’s operationalactivities (cash, trade receivables and payables) and from instruments held as part of the Group’s riskmanagement activities (derivative financial instruments). The Group’s financial risk management is carried out by the Group Treasury function and governed by the Board-approvedTreasury 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 thefollowing key steps: risk identification, risk measurement, setting risk tolerances and hedging objectives, strategy designand strategy implementation.The Policy requires periodic reporting of financial risks to the Board, and its application is subject to oversight from the ChiefFinancial 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 andtenor of these instruments.Coles Group Limited 2020 Annual Report129In the normal course of business, the Group is exposed to various risks as set out below: RISKEXPOSUREMANAGEMENTMarket risksInterest rate riskThe Group’s exposure tointerest rate risk relatesprimarily to interest-bearingliabilities where interest ischarged at variable rates.The Group manages interest rate risk by having accessto both fixed and variable debt facilities. In line with thePolicy, this risk is further managed by hedging a portion ofthe variable rate debt exposures with derivative financialinstruments to convert floating rate debt obligations tofixed rate obligations.Foreign exchange riskThe Group has exposureto foreign exchange riskprincipally arising frompurchases of inventoryand capital equipmentdenominated in foreigncurrencies.To manage foreign currency transaction risk, theGroup hedges material foreign currency denominatedexpenditure at the time of the commitment and hedgesa proportion of foreign currency denominated forecastexposures (mainly relating to the purchase of inventory)through the use of forward foreign exchange contracts.Liquidity riskThe Group is exposed toliquidity and funding riskfrom operations and externalborrowings.Liquidity risk is the risk thatunforeseen events causepressure on, or curtail, theGroup’s cash flows.Funding risk is the risk thatsufficient funds will not beavailable to meet the Group’sfinancial commitments in atimely manner.Liquidity risk is measured under both normal marketoperating conditions and under a crisis situation whichcurtails cash flows for an extended period. This approachis designed to ensure that the Group’s funding frameworkis sufficiently flexible to ensure liquidity under a wide rangeof market conditions.The Group regularly reviews its short, medium and long-termfunding requirements. The Policy requires that sufficientcommitted funds are available to meet medium termrequirements, with flexibility and headroom in the event astrategic opportunity should arise. The Group maintains aliquidity reserve in the form of undrawn facilities of at least$1 billion.Credit riskThe Group is exposed to creditrisk from its financing activities,including deposits withfinancial institutions and otherfinancial instruments.With respect to credit riskarising from cash and cashequivalents, trade and otherreceivables and certainderivative instruments, theGroup’s exposure arises fromdefault of the counterparty.Credit risk for the Groupalso arises from variousfinancial guarantees in whichmembers of the Group act asguarantor.The majority of the Group’s sales are on a cash basis, andthe Group’s exposure to credit risk from customer sales istherefore minimal.The Group’s trade and other receivables relate largelyto commercial income due from suppliers and otherreceivables from creditworthy third parties.Counterparty limits, credit ratings and exposures areactively managed in accordance with the Policy. TheGroup’s exposure to bad debts is not significant, anddefault rates have historically been very low. The creditquality of trade and other receivables neither past due norimpaired has been assessed as high on the basis of creditratings (where available) or historical information aboutcounterparty default.Since the Group trades only with recognised creditworthythird parties, there is no requirement for collateral by eitherparty.The carrying amount of trade and other receivables andother financial assets in the Statement of Financial Positionrepresents the Group’s maximum exposure to credit risk.There is also exposure to credit risk where members ofthe Group have entered into guarantees, however theprobability of being required to make payments underthese guarantees is considered remote. Refer to Note 6.2Contingent liabilities for further details. Coles Group Limited 2020 Annual Report1304.2 Financial risk management (continued)Foreign exchange riskThe Group is primarily exposed to foreign exchange risk in relation to the United States dollar (USD), the Euro (EUR) and theBritish Pound (GBP). The Group considers its exposure to USD, EUR and GBP arising from purchases to be a long-term andongoing 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 derivativeasset / (liability) positions: NOTIONAL VALUECARRYING VALUEWEIGHTED AVERAGEHEDGE RATEBUY / SELL28 JUNE 2020$M30 JUNE 2019$M28 JUNE 2020$M30 JUNE 2019$M28 JUNE 202030 JUNE 2019USD / AUD7263–10.690.71EUR / AUD411420(20)(13)0.580.58GBP / AUD4611(1)–0.540.55 At the reporting date, the Group has the following exposures to USD, EUR and GBP: USD $MEUR €MGBP £M28 JUNE 202030 JUNE 201928 JUNE 202030 JUNE 201928 JUNE 202030 JUNE 2019Financial assetsCash and cash equivalents42––––Forward exchange contracts494523712421256Financial liabilitiesTrade and other payables(63)(39)(21)(16)(5)(2)Net exposure(10)8216226204 1 EUR forward exchange contracts of $191 million (2019: $213 million) relate to capital commitments. The remaining contracts hedge current and future tradepayables denominated in EUR.Foreign exchange rate sensitivityAt the reporting date, had the Australian dollar moved against the USD, EUR and GBP (with all other variables heldconstant), the Group’s post-tax profit and OCI would have been affected by the change in value of its financial assets andfinancial liabilities.The following sensitivities are based on the foreign exchange risk exposures in existence at the reporting date and thedetermination of reasonably possible movements based on management’s assessment of reasonable fluctuations: POST-TAX PROFIT INCREASE(DECREASE):POST-TAX OCI INCREASE(DECREASE):RATECHANGE28 JUNE 2020$M30 JUNE 2019$M28 JUNE 2020$M30 JUNE 2019$MAUD / USD+10%2–(1)(1)-10%(2)–11AUD / EUR+10%–(1)(22)(23)-10%–12728AUD / GBP+10%––(2)–-10%––3– Coles Group Limited 2020 Annual Report131Interest rate riskAt the reporting date, the Group has the following financial assets and liabilities exposed to variable interest rate risk that,with the exception of interest rate swaps, are not designated as cash flow hedges: 28 JUNE 202030 JUNE 2019EXPOSURE$MWEIGHTEDAVERAGEINTEREST RATE%EXPOSURE$MWEIGHTEDAVERAGEINTEREST RATE%Financial assetsCash at bank and on deposit4520.64101.6Financial liabilitiesBank loans(760)(1.3)(1,460)(2.4)Less: interest rate swaps (notional principal amount)250(1.6)400(0.4)Net exposure to cash flow interest rate risk(58)(650) Interest rate sensitivityA 100 basis point increase represents management’s assessment of the reasonably possible change in interest rates. Basedon the variable interest rate exposures in existence at the reporting date, if interest rates increased by 100 basis points, withall other variables held constant, the impact would be: POST-TAX PROFIT INCREASE(DECREASE):POST-TAX OCI INCREASE(DECREASE):28 JUNE 2020$M30 JUNE 2019$M28 JUNE 2020$M30 JUNE 2019$MImpacts of reasonably possible movements:+1.0% (100 basis points)–(5)68 Liquidity riskThe Group aims to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts andbank loans with a variety of counterparties.The committed facilities of the Group are set out below: CONSOLIDATED28 JUNE 2020$M30 JUNE 2019$MFinancing facilities available:Bank overdrafts1313Revolving multi-option facilities2,6402,640Term loan facilities6601,3603,3134,013Financing facilities utilised:Revolving multi-option facilities100100Guarantees issued1358342Term loan facilities6601,3601,1181,802Financing not utilised:Bank overdrafts1313Revolving multi-option facilities12,1822,1982,1952,211 1 As at 28 June 2020, bank guarantees totalling $358 million (2019: $342 million) have been issued on behalf of the Company through the revolving multioption facilities. While the Company has entered into these guarantees, the probability of having to make payments under these guarantees is consideredremote. Refer to Note 6.2 Contingent liabilities for further details.The Group holds $992 million cash and cash equivalents at the reporting date (30 June 2019: $940 million).Coles Group Limited 2020 Annual Report1324.2 Financial risk management (continued)Assets pledged as securityA controlled entity has issued a floating charge over assets, capped at $80 million (30 June 2019: $80 million), as security forpayment obligations for fuel sales collected on behalf of Viva in accordance with the New Alliance Agreement. The assetsare, therefore, excluded from financial covenants in all debt documentation.Maturity analysisThe table below sets out the Group’s financial liabilities across the relevant maturity periods based on their contractualmaturity date. At the reporting date, the remaining undiscounted contractual maturities of the Group’s financial liabilitiesand their carrying amounts are as follows: CONSOLIDATED< 12 MONTHS$M1-2 YEARS$M2-5 YEARS$M> 5 YEARS$MTOTALCONTRACTUALCASH FLOWS$MCARRYINGAMOUNT$M28 June 2020Trade and other payables3,737–––3,7373,737Bank debt (principal andinterest)2119633151824760Capital market debt(principal and interest)151544646720598Lease liabilities1,2501,2193,3255,59211,3869,083Interest rate swaps427–1311Forward exchange contracts687–2121Total5,0331,2634,0166,38916,70114,21030 June 2019Trade and other payables3,378–––3,3783,378Bank debt (principal andinterest)44441,4001561,6441,462Interest rate swaps113167Forward exchange contracts139–1312Total3,424481,4121575,0414,859 For variable rate instruments, the amount disclosed is determined by reference to the interest rate at the last re-pricingdate. Contractual cash flows are undiscounted and as such will not necessarily agree with their carrying amounts.Changes in liabilities arising from financing activities NOTE1 JULY 2019$MCASH FLOWS$MCHANGES INFAIR VALUE$MLEASESRECOGNISED$M28 JUNE 2020$MBank debt3.11,460(702)––758Capital market debt3.1–596––596Lease liabilities2.78,856(846)–1,0739,083Derivatives4.319–13–32Total liabilities from financial activities10,335(952)131,07310,469 Coles Group Limited 2020 Annual Report1334.3 Financial instrumentsFinancial assets and liabilities measured at fair valueThe following table sets out the fair value measurement hierarchy of the Group’s derivative financial instruments: LEVEL 2 FAIR VALUE HIERARCHY28 JUNE 202030 JUNE 2019ASSET$MLIABILITY$MASSET$MLIABILITY$MCash flow hedgesForward exchange contracts1(22)1(14)Interest rates swaps–(11)–(6)Power Purchase Agreement–(3)–– The Group measures certain financial instruments, such as derivatives, at fair value at each reporting date. Fair value isthe price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between marketparticipants at the measurement date.The fair value of an asset or liability is measured using the assumptions that market participants would use when pricingthe asset or liability, assuming that market participants act in their economic interest. The Group uses valuation techniquesthat are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising theuse 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 thefair value hierarchy based on the lowest level input that is significant to the fair value measurement as a whole. LEVEL 1Fair value is calculated using quoted prices in active markets for identical assets or liabilitiesLEVEL 2Fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for theasset or liability, either directly (as prices) or indirectly (derived from prices)LEVEL 3Fair value is estimated using inputs for the asset or liability that are not based on observable market data(unobservable inputs) All of the Group’s financial instruments carried at fair value were valued using market observable inputs (Level 2).For financial instruments that are carried at fair value on a recurring basis, the Group determines whether transfers haveoccurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significantto the fair value measurement as a whole) at the end of each reporting period.There were no transfers between Level 1 and Level 2 during the period. The Group does not hold any material Level 3financial instruments.DerivativesThe Group enters into derivative financial instruments with various counterparties, principally financial institutions withinvestment grade credit ratings. Foreign exchange forward contracts and interest rate swap contracts are valued usingforward pricing techniques. This includes the use of market observable inputs, such as foreign exchange spot and forwardrates, yield curves of the respective currencies and interest rate curves. Accordingly, these derivatives are classified asLevel 2.Carrying amounts versus fair valuesThe carrying amounts and fair values of the Group’s financial assets and financial liabilities recognised in the financialstatements are materially the same.Coles Group Limited 2020 Annual Report1344.3 Financial instruments (continued)Offsetting of financial instrumentsThe Group presents its derivative assets and liabilities on a gross basis, with the exception of derivative financial instrumentswhich it intends to settle on a net basis and which are subject to enforceable master netting arrangements, such as anInternational Swaps and Derivatives Association (ISDA) master netting agreement. In certain circumstances, for examplewhen a credit event such as default occurs, all outstanding transactions under an ISDA agreement are terminated. Thetermination value is assessed, and only a single net amount is payable in settlement of all transactions.Commercial income due from suppliers is recognised within trade receivables, except in cases where the Group currentlyhas a legally enforceable right of set-off and the intention to settle on a net basis, in which case only the net amountreceivable or payable is recognised.The following table sets out the Group’s financial assets and financial liabilities which have been offset in the consolidatedStatement of Financial Position at the reporting date: CONSOLIDATEDGROSS FINANCIALASSETS / (LIABILITIES)$MGROSS FINANCIAL(LIABILITIES) / ASSETS SET OFF$MNET FINANCIAL ASSETS /(LIABILITIES) PRESENTEDIN THE STATEMENT OFFINANCIAL POSITION$M28 June 2020Trade and other receivables560(126)434Trade and other payables(3,863)126(3,737)30 June 2019Trade and other receivables500(140)360Trade and other payables(3,520)140(3,380) Hedge accountingWhere 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 forundertaking the hedge. The documentation also demonstrates, both at hedge inception and on an ongoing basis, thatthe 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 hedgeDerivatives or other financial instruments that hedge the exposure to variability in cash flowsattributable 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 hedgingperiod where the Group has highly probable purchase or settlement commitmentsdenominated in foreign currencies; and• interest rate fluctuations over the hedging period where the Group has variable ratedebt obligations.Recognition dateThe date the hedging instrument is entered intoMeasurementFair valueChanges in fair valueChanges in the fair value of derivatives designated as cash flow hedges are recogniseddirectly in OCI and accumulated in equity in the hedging reserve to the extent that thehedge is highly effective. To the extent that the hedge is ineffective, changes in fair valueare recognised immediately in the Statement of Profit or Loss. Coles Group Limited 2020 Annual Report1355. Group structure This section provides information relating to subsidiaries and other material investments of the Group. 5.1 Equity accounted investments OWNERSHIP INTERESTNAME OF COMPANYPRINCIPAL ACTIVITYPLACE OFINCORPORATIONTYPE28 JUNE 202030 JUNE 2019Loyalty Pacific Pty LtdOperator of the flybuysloyalty programAustraliaJoint Venture50%50%Queensland VenueCo. Pty LtdOperator of Spirit Hotels andQueensland retail liquor businessAustraliaAssociate50%50% A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rightsto the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, whichexists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Anassociate is an entity that is not controlled or jointly controlled by the Group, but over which the Group has significantinfluence.The Group accounts for its investments in joint ventures and associates using the equity method of accounting in theconsolidated financial statements. Under the equity method, the investment in a joint venture or associate is initiallyrecognised at cost. Thereafter, the carrying amount of the investment is adjusted to recognise the Group’s share of profitafter tax of the joint venture or associate, which is recognised in profit or loss. The Group’s share of OCI is recognised withinthe Statement of Other Comprehensive Income. Dividends received from a joint venture or associate reduce the carryingamount of the investment.After application of the equity method, the Group determines whether it is necessary to recognise an impairment lossfor its investment in a joint venture or associate. At each reporting date, the Group determines whether there is objectiveevidence that the investment in the joint venture or associate is impaired. If there is such evidence, the Group calculatesthe amount of impairment as the difference between the recoverable amount of the joint venture or associate and itscarrying value. Any impairment loss will be recognised within ‘share of net profit of equity accounted investments’ in theStatement of Profit or Loss. Key judgement: Control and significant influenceThe Group has a number of management agreements relating to its joint venture and associate investments which itconsiders when determining whether it has control, joint control or significant influence. The Group assesses whetherit has the power to direct the relevant activities of the investee by considering the rights it holds to appoint or removekey management and the decision-making rights and scope of powers specified in the agreements. The Group’s interests in Loyalty Pacific Pty Ltd and Queensland Venue Co. Pty Ltd are accounted for using the equitymethod in the Statement of Financial Position.Loyalty Pacific Pty LtdA reconciliation of the carrying amount of the Group’s investment in Loyalty Pacific Pty Ltd is set out below: CONSOLIDATEDYEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MBeginning of the period11–Additions116(Loss) / profit for the period(6)5End of the period1611 Coles Group Limited 2020 Annual Report1365.1 Equity accounted investments (continued)Queensland Venue Co. Pty LtdDuring the year ended 30 June 2019, the Company entered into an incorporated joint venture with AVC for the operationof Spirit Hotels (the ‘Hotel business’) and the retail liquor stores linked to Spirit Hotels venues (collectively the ‘Retail Liquorbusiness’).As part of the transaction, a group subsidiary company, Liquorland (Qld) Pty Ltd was converted into an incorporated jointventure company, QVC. To facilitate the transaction, QVC restructured its share capital by issuing two classes of shares:R-Shares which confer the right to the full economic benefit of the Retail Liquor business and H-Shares which confer theright to the full economic benefit of the Hotel business.The Company sold the H-shares to AVC, while retaining the R-shares. The transaction was implemented through a numberof agreements, including the Share Sale Agreement, Shareholders’ Deed, the Retail Liquor Business Operations Agreement(RLBOA) and the Supply Agreement.Under the Shareholders’ Deed the Company holds all R-shares in QVC and operates the Retail Liquor business through itswholly owned subsidiary, Liquorland (Australia) Pty. Ltd. (LLA), subject to the terms of the RLBOA. Through its ownership ofR-shares, the Company has significant influence over QVC for accounting purposes and its investment in QVC is classifiedas an investment in an associate. The Company initially recognised its interest in QVC at fair value, and subsequentlymeasured using the equity method.For accounting purposes, and under the operation of the RLBOA and Supply Agreement, LLA is considered the principalin relation to retail liquor sales due to its exposure to the economic risks and benefits associated with the Retail Liquorbusiness. Accordingly, LLA recognises revenue from retail liquor sales by QVC directly in its Statement of Profit or Loss.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 relatingto 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: CONSOLIDATEDYEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MBeginning of the period201–Additions–201Profit for the period––End of the period201201 5.2 Assets held for saleAt 28 June 2020, four of the Group’s properties with a total carrying value of $47 million and $28 million of plant andequipment have been classified as held for sale (2019: $94 million).The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recoveredprincipally through a sale transaction rather than through continuing use. They are measured at the lower of their carryingamount 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 groupis available for immediate sale in its present condition. A sale is considered highly probable when actions required tocomplete the sale indicate that it is unlikely significant changes to the sale will be made or that the decision to sell will bewithdrawn, and where management is committed to a plan to sell the asset and the sale is expected to be completedwithin one year from the date of the classification.Coles Group Limited 2020 Annual Report1375.3 Discontinued operationsThe Group presents as discontinued operations any component of the Group that has either been disposed of or isclassified as held for sale, and:• represents a separate major line of business or geographical area of operations; and• is part of a single coordinated plan to dispose of a separate major line of business, or geographical area of operations;or• is a subsidiary acquired exclusively with a view to resale.The net results of discontinued operations are presented separately in the Statement of Profit or Loss.As presented in the Group’s FY19 financial report, the following entities were material wholly-owned subsidiaries during theprior financial year until 19 November 2018 when the Company transferred control of these entities to Wesfarmers as partof the corporate restructure prior to the Group’s demerger from Wesfarmers:• Kmart Australia Limited and controlled entities (‘Kmart’)• Target Australia Pty Ltd and controlled entities (‘Target’)• Officeworks Ltd and controlled entities (‘Officeworks’)The profit for Kmart, Target and Officeworks which was presented as discontinued operations in the prior year is set outbelow: YEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 20191$MRevenue–4,341Expenses–(3,832)Profit before income tax–509Income tax expense–(152)Profit for the period from discontinued operations–357 1 Financial performance reflects period up to date of disposal, being 19 November 2018Assets and liabilities of the Kmart, Target and Officeworks discontinued operations at the date of transfer to Wesfarmersare set out below: 19 NOVEMBER 2018$MAssetsCash and cash equivalents138Trade and other receivables77Inventories1,707Property, plant and equipment997Goodwill and intangibles236Other assets280Total assets disposed3,435LiabilitiesTrade and other payables2,205Other liabilities875Total liabilities disposed3,080Net assets disposed355 Coles Group Limited 2020 Annual Report1385.3 Discontinued operations (continued)Cash flows for the Kmart, Target and Officeworks discontinued operations during the prior year are set out below: YEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 20191$MNet cash flows from operating activities–322Net cash flows from investing activities–219Net cash flows used in financing activities–(532)Net increase in cash and cash equivalents from discontinued operations–9 1 Cash flows reflect period up to 19 November 2018EPS from the Kmart, Target and Officeworks discontinued operations is set out below: YEAR ENDED28 JUNE 2020YEAR ENDED30 JUNE 20191Basic and diluted EPS (cents)–27 1 EPS reflects period up to 19 November 2018Gain / loss on disposalGain or loss on disposal is the difference between:a) the carrying amount of the net assets plus any attributable goodwill and amounts accumulated in OCI (for example,foreign translation adjustments and available-for-sale reserves); andb) the proceeds of sale.No gain or loss was recorded for the disposal of Kmart, Target and Officeworks.Coles Group Limited 2020 Annual Report1395.4 SubsidiariesThe ultimate parent of the Group is Coles Group Limited, a company incorporated in Australia. Subsidiaries are fullyconsolidated from the date of acquisition, being the date Coles Group Limited obtains control, and continue to beconsolidated until the date control ceases. Control exists where the Group has the power to govern the financial andoperating 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 statedotherwise. Andearp Pty LtdColes Retail Services Pty LtdAustralian Liquor Group Ltd*Coles Supermarkets Australia Pty Ltd*Bi-Lo Pty. Limited*Coles WFS Pty Ltd (formerly Wesfarmers Finance Pty Ltd)Charlie Carter (Norwest) Pty LtdCSA Retail (Finance) Pty LtdChef Fresh Pty Ltde.colesgroup Pty LtdCMPQ (CML) Pty LtdEureka Operations Pty Ltd*Coles Ansett Travel Pty Ltd (97.5%)GBPL Pty LtdColes Export Australia Pty Ltd(formerly Tooronga Holdings Pty Ltd)*Grocery Holdings Pty Ltd*Coles Financial Services Pty LtdKaties Fashions (Aust) Pty LimitedColes FS Holding Company Pty Ltd(formerly Wesfarmers Finance Holding Company Pty Ltd)Liquorland (Australia) Pty. Ltd*Coles Group Deposit Services Pty LtdNewmart Pty LtdColes Group Finance Limited*Procurement Online Pty LtdColes Group Properties Holdings Ltd*Retail Ready Operations Australia Pty. Ltd*Coles Group Property Developments Ltd*Richmond Plaza Shopping Centre Pty LtdColes Group Superannuation Fund Pty LtdTickoth Pty LtdColes Group Supply Chain Pty Ltd*WFPL Funding Co Pty LtdColes Group Treasury Pty Ltd(formerly Coles Group Payments Pty Ltd)*WFPL No 2 Pty LtdColes Online Pty Ltd*WFPL Security SPV Pty LtdColes Property Management Pty LtdWFPL SPV Pty LtdEntities formed/incorporated or acquired during the financial yearColes Export Asia Limited (incorporated in Hong Kong)Coles Trading (Shanghai) Co. Limited (incorporated in China)Entities deregistered during the financial yearTyremaster Pty LtdNow.com.au Pty LtdWaratah Cove Pty LtdColes Group Finance (USA) Pty Ltd * These entities are parties to the Deed of Cross Guarantee and members of the Closed Group as at 28 June 2020Deed of cross guaranteePursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (‘ASIC Instrument’) the wholly-ownedsubsidiaries listed above (*) are relieved from the Corporations Act 2001(Cth) requirements for preparation, audit andlodgement of financial reports, and Directors’ Reports.As a condition of the ASIC Instrument, the Company and the subsidiaries listed above have entered into a Deed of CrossGuarantee (the Deed). The effect of the Deed is that the Company guarantees to pay any deficiency in the event ofwinding up any controlled entity, or if they do not meet their obligations under the terms of any overdrafts, loans, leases orother liabilities subject to the guarantee. The controlled entities have also given a similar guarantee in the event that theCompany is wound up or if it does not meet its obligations under the terms of any overdrafts, loans, leases or other liabilitiessubject to the guarantee.A Statement of Comprehensive Income and retained earnings and a Statement of Financial Position, comprising theCompany and controlled entities which are a party to the Deed, after eliminating all transactions between the parties tothe Deed, for the year ended 28 June 2020 are set out below:Coles Group Limited 2020 Annual Report1405.4 Subsidiaries (continued)Deed of cross guarantee (continued)Statement of Comprehensive Income and retained earnings CLOSED GROUPYEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MContinuing OperationsSales revenue37,40837,262Other operating revenue376186Total operating revenue37,78437,448Cost of sales(28,048)(28,591)Gross profit9,7368,857Other income114417Administration expenses(8,076)(8,199)Other expenses–(146)Share of net (loss) / profit of equity accounted investments(6)5Earnings before interest and tax1,768934Financing costs(443)(42)Profit before income tax1,325892Income tax expense(337)(291)Profit for the year988601Items that may be reclassifed to proft or loss:Net movement in the fair value of cash flow hedges(17)(2)Income tax effect51Other comprehensive income which may be reclassified to profit or lossin subsequent periods(12)(1)Total comprehensive income for the year976600Retained earningsRetained earnings at the beginning of the year1,7561,497Effect of adoption of AASB 16 Leases(831)–Profit for the year988601Dividends paid(873)(342)Retained earnings at the end of the year1,0401,756 Coles Group Limited 2020 Annual Report141Statement of financial position CLOSED GROUP28 JUNE 2020$M30 JUNE 2019$MAssetsCurrent assetsCash and cash equivalents992940Trade and other receivables434359Inventories2,1611,964Income tax receivable43–Assets held for sale7591Other assets6947Total current assets3,7743,401Non-current assetsProperty, plant and equipment4,0914,103Right-of-use assets7,655–Intangible assets1,5941,541Deferred tax assets847365Investment in subsidiaries238238Investment in joint venture217212Other assets120134Total non-current assets14,7626,593Total assets18,5369,994LiabilitiesCurrent liabilitiesTrade and other payables3,8583,528Provisions858743Lease liabilities884–Other198168Total current liabilities5,7984,439Non-current liabilitiesInterest-bearing liabilities1,3541,460Provisions472599Lease liabilities8,193–Other2570Total non-current liabilities10,0442,129Total liabilities15,8426,568Net assets2,6943,426EquityContributed equity1,6111,628Reserves4342Retained earnings1,0401,756Total equity2,6943,426 Coles Group Limited 2020 Annual Report1425.5 Parent entity informationSummary financial information for the Company is set out below: YEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MProfit for the period3,2671,266Other comprehensive income––Total comprehensive income for the period3,2671,26628 JUNE 2020$M30 JUNE 2019$MAssetsCurrent assets3,8401,903Non-current assets5,0905,071Total assets8,9306,974LiabilitiesCurrent liabilities1,059741Non-current liabilities2,6693,405Total liabilities3,7284,146EquityContributed equity1,6111,628Share-based payments reserve3639Retained earnings3,5551,161Total equity5,2022,828 As at 28 June 2020, the Company has no guarantees in relation to the debts of its subsidiaries (2019: $nil).As at 28 June 2020, the Company has no contingent liabilities (2019: $nil). As at 28 June 2020, the Company has bankguarantees totalling $324 million (2019: $310 million).As at 28 June 2020, the Company has contractual commitments for the acquisition of property, plant and equipmenttotalling $512 million (2019: $590 million).Coles Group Limited 2020 Annual Report1436. Unrecognised items This section provides information about items that are not recognised in the consolidated financialstatements but could potentially have a significant impact on the Group’s financial performance orposition in the future. 6.1 CommitmentsA commitment represents a contractual obligation to make a payment in the future. The Group’s commitments relate to capitalexpenditure and operating leases. Commitments are not recognised in the Statement of Financial Position, but are disclosed.Capital expenditure commitments of the Group at the reporting date are set out below: CONSOLIDATED28 JUNE 2020$M30 JUNE 2019$MWithin one year264140Between one and five years378514Total capital commitments for expenditure for continuing operations642654 The commitment amounts disclosed above represent the maximum amounts that the Group is obliged to pay.At 28 June 2020, the Group also has commitments relating to lease agreements that have not yet commenced. The futurelease payments (undiscounted) for non-cancellable periods are $22 million within one year, $584 million between oneand five years and $2,432 million thereafter. The commitments relate to lease agreements associated with new stores, theSupply Chain Modernisation program and online fulfilment centres.6.2 Contingent liabilitiesContingent liabilities are potential future cash outflows where the likelihood of payment is more than remote but is notconsidered probable or cannot be reliably measured. Contingent liabilities are not recognised in the Statement ofFinancial Position but are disclosed.As at 28 June 2020, the Group has bank guarantees totalling $358 million (2019: $342 million).While the entities in the Group have entered into these guarantees, the probability of having to make payments underthese guarantees is considered remote. The nature of the guarantees provided is set out below:• guarantees in the normal course of business relating to conditions set out in property development applications andfor the sale of properties• guarantees relating to workers compensation self-insurance liabilities as required by State WorkCover authorities. Theseguarantees provide the authorities with security in the event that the Group is unable to meet its workers compensationinsurance obligations. The guarantees required are determined by reference to the value of the self-insurance provisionsfor workers compensation which form part of the self-insurance provisions recognised by the Group and disclosed inNote 2.9 Provisions.In May 2020, Coles was notified that a class action proceeding had been filed in the Federal Court of Australia in relationto payment of Coles managers employed in supermarkets. Coles is defending the proceeding. The court proceeding isat an early stage, and therefore the potential outcome and total costs associated with this matter are uncertain as at thedate of this report.From time to time, entities within the Group are party to various legal actions as well as inquiries from regulators andgovernment bodies that have arisen in the ordinary course of business. Consideration has been given to such matters andit is expected that the resolution of these contingencies will not have a material impact on the financial position of theGroup, or are not at a stage to support a reasonable evaluation of the likely outcome. Key estimate: Contingent liabilitiesContingent liabilities are possible obligations whose existence will be confirmed only on the occurrence or nonoccurrence of uncertain future events outside the Group’s control, or present obligations that are not recognisedbecause it is not probable that a settlement will be required or the value of such a payment cannot be reliably estimated. Coles Group Limited 2020 Annual Report1447. Other disclosures This section provides other disclosures required by Australian Accounting Standards that are consideredrelevant to understanding the Group’s financial performance or position. 7.1 Related party disclosures YEAR ENDED28 JUNE 2020$MYEAR ENDED30 JUNE 2019$MJoint ventures and associatesLoyalty Pacific Pty LtdSale of goods to members of flybuys134146Purchase of points from Loyalty Pacific Pty Ltd228269Amounts owing to Loyalty Pacific Pty Ltd201169Queensland Venue Co. Pty LtdSales to QVC31Amounts paid to QVC569Amounts receivable from QVC3240Other related partiesWesfarmers Limited and its controlled entities1Rental income received23Rental expenses paid1315Sales to Wesfarmers Limited and its controlled entities22Purchases from Wesfarmers Limited and its controlled entities3757Amounts owing to Wesfarmers Limited and its controlled entitiesn/a16 1 Includes transactions up until 31 March 2020 being the date that Wesfarmers Limited and its controlled entities ceased to be a related party of the Group.Parent entityThe ultimate parent entity of the Group is Coles Group Limited, which is domiciled and incorporated in Australia. Prior tothe demerger from Wesfarmers and subsequent listing as a standalone entity on the ASX, the ultimate parent entity of theGroup was Wesfarmers Limited.Transactions with subsidiariesIntercompany transactions, assets and liabilities between entities within the Group have been eliminated in the consolidatedfinancial statements. Transactions with entities transferred from the Group to Wesfarmers have been treated as relatedparty transactions following the transfer of these entities to Wesfarmers. The nature of these transactions is set out below.Transactions with joint venture and associateVarious transactions occurred between the Group and Loyalty Pacific Pty Ltd (operator of flybuys) during the year ended28 June 2020, including:• sale of goods to members of flybuys• purchase of points from Loyalty Pacific Pty Ltd• reimbursement of costs incurredVarious transactions occurred between the Group and QVC during the year ended 28 June 2020, including:• service fees paid• sales of inventory to QVCTransactions with Wesfarmers Limited and its controlled entities (‘Wesfarmers Group’)As part of the demerger, certain members of the Wesfarmers Group and the Group entered into Transitional ServicesAgreements (TSA) for the provision of services for up to 24 months. All services provided under a TSA are charged at cost.Amounts disclosed relate to transactions up until 31 March 2020 being the date that Wesfarmers Limited and its controlledentities ceased to be a related party of the Group.Coles Group Limited 2020 Annual Report145The transitional services provided by the Group to the Wesfarmers Group included:• information technology services• payroll services and business process outsourcing• finance services and systems support• other services including the management and facilitation of telecommunications and other third-party rechargeproductsIn addition, the Company is party to arrangements with third parties which were negotiated on behalf of all subsidiariesof Wesfarmers prior to demerger. These arrangements include amongst others, property leases where the Group is a headlessee and a sub-lessor to its related parties and vice versa. Where these arrangements were in place up until 31 March2020, the Group or its related party settled the liabilities on each other’s behalf and subsequently recovered the third-partycosts by on-charging without a margin.The Group views the on-charging of third-party costs without a margin as transactions with a third party. Therefore, thesetransactions have not been disclosed as related party transactions.Transactions with key management personnelThe transactions with Key Management Personnel (KMP) for the year ended 28 June 2020 include compensation of theCompany’s Executive Director. Non-executive Director compensation is detailed in the Remuneration Report.Compensation of KMP of the Group: CONSOLIDATEDYEAR ENDED28 JUNE 2020$YEAR ENDED30 JUNE 2019$Short-term employee benefits9,617,5359,446,947Post-employment benefits84,01259,143Other long-term benefits45,36533,043Share-based payments5,096,2971,492,103Total compensation paid to key management personnel14,843,20911,031,236 The increase in the total compensation value for FY20 compared to FY19 largely reflects changes in KMP compositionand the pro-rating of remuneration in FY19. Pro-rating for FY19 was aligned to the dates from which each individual wasconsidered KMP, as well as the timing of the Company ceasing to be a wholly-owned subsidiary of Wesfarmers.Other transactions with KMPDuring the year ended 28 June 2020, Mr Freudenstein, a Non-executive Director, sold livestock to Coles via a livestockagent for an aggregate amount of $65,832. The transaction occurred on an arm’s length basis with normal commercialterms.Terms and conditions of transactions with related partiesSales 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 havebeen no guarantees provided or received for any related party receivables or payables.For the year ended 28 June 2020, the Group has not recognised a provision for expected credit losses relating to amountsowed by related parties (2019: $nil).7.2 Share-based paymentsThe Group continues to operate the Coles Group Limited Equity Incentive Plan (‘the Plan’) to assist in the motivation,retention and reward of employees. The Plan provides flexibility for the Group to offer rights, options and/or restrictedshares as incentives, subject to the terms of individual offers and the satisfaction of performance and/or service conditionsdetermined by the Board. It also provides the Group with the ability to invite employees to acquire Coles Group LimitedShares through a salary sacrifice arrangement.Coles Group Limited 2020 Annual Report1467.2 Share-based payments (continued)Additional information on award schemesDetails of grants made under the Plan during the year are set out in the Remuneration Report. Key estimate: Share-based paymentsThe fair value of share-based payment transactions has been determined by an independent valuation expert.Estimating the fair value of share-based payment transactions requires the determination of the most appropriatevaluation model, which depends on the terms and conditions of the grant. Assumptions regarding the mostappropriate inputs to the valuation model must be made. This includes, but is not limited to, share price volatility,discount rate and dividend yield.In measuring the fair value of awards issued under the Long-Term Incentive (LTI) plan subject to the relative totalshareholder return (TSR) vesting condition, an adjusted form of the Black-Scholes Model that includes a MonteCarlo Simulation Model has been utilised. The Monte Carlo Simulation Model has been modified to incorporate anestimate of the probability of achieving the TSR hurdle. In valuing the awards subject to non-market based vestingconditions, the Black-Scholes Model has been utilised. 7.3 Auditor’s remuneration CONSOLIDATEDYEAR ENDED28 JUNE 2020$000YEAR ENDED30 JUNE 2019$000Amounts received, or due and receivable, by Ernst & Young (Australia) for:Audit services:Audit or review of the Financial Report of the Company and or other entity in the Group2,6313,6501Assurance related6953851, 2Non-audit services:Tax compliance services135140Total auditor’s remuneration3,4614,175 1 Includes audit services associated with the Group’s demerger from Wesfarmers. These fees have been reclassified from assurance related services to auditrelated services in accordance with the ASIC guidance released following the Parliamentary Joint Committee on Corporations and Financial Services’Inquiry into the Regulation of Auditing in Australia.2 Certain FY19 services were in progress at the time of disclosure. These amounts have now been updated following completion of these services in FY20.The auditor of the Group is Ernst & Young (EY). Fees charged by EY for ‘Assurance related services’ are for services that arereasonably related to the performance of the audit or review of financial reports, for other assurance engagements (suchas assurance over the Group’s Sustainability Report) and for other assurance related engagements which are appropriatefor our external auditor to perform.The total fees for non-audit services of $135,000 represent 3.9% (2019: 3.4%) of the total fees paid or payable to EY andrelated practices for the year ended 28 June 2020.7.4 AcquisitionsIn May 2020, Coles Group Limited acquired certain assets and assumed certain liabilities of Jewel Fine Foods (Jewel). Theassets acquired included leasehold improvements and plant and equipment. As part of the transaction, property leaseswere assigned to the Company and right-of-use assets and corresponding lease liabilities have been recognised in theStatement of Financial Position. Under the provisional accounting performed by the Group, the purchase considerationpaid materially equalled the fair value of assets acquired and liabilities assumed.7.5 New accounting standards and interpretationsThe Group applied AASB 16 Leases (‘AASB 16’) for the first time in this reporting period. The nature and effect of the changesas a result of the adoption of AASB 16 are described below.Several other amendments and interpretations apply for the first time in this financial year but do not have a material impacton the consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations oramendments that have been issued but are not yet effective.Coles Group Limited 2020 Annual Report147AASB 16 LeasesThe Group adopted AASB 16 from 1 July 2019 using the modified retrospective approach, under which the reclassificationsand adjustments arising from the new standard have been recognised in the opening Statement of Financial Position at 1July 2019. The comparative information for the 30 June 2019 reporting period has not been restated as permitted under thetransitional provisions in the standard.On adoption of AASB 16, the Group recognised lease liabilities in relation to leases previously classified as operatingleases under the principles of AASB 117 Leases. These liabilities were measured at the present value of the remaining leasepayments, discounted using the lessee’s incremental borrowing rate at 1 July 2019. The weighted average incrementalborrowing rate applied to the lease liabilities at 1 July 2019 was 4.68%.A reconciliation of operating lease commitments disclosed at 30 June 2019 to lease liabilities recognised under AASB 16 attransition date is provided below: 1 JULY 2019$MOperating lease commitments disclosed as at 30 June 201910,577Less: application of discounting(2,320)Add: adjustment previously made to remove base rent escalations that were considered contingentat lease inception399Discounted lease commitments using the lessee’s incremental borrowing rate at the date of transitionto AASB 168,656Less: short-term leases not accounted for under AASB 16 in accordance with the practical expedient(5)Add: extension options reasonably certain to be exercised723Less: separation of non-lease components(518)Total lease liabilities recognised under AASB 16 at 1 July 20198,856 The associated right-of-use assets for property leases have been measured either on a retrospective basis as if AASB 16had always applied, or equal to the lease liability. Non-property right-of-use assets have been measured at the amountequal to the lease liability. Right-of-use assets recognised at transition have been adjusted by the amount of any prepaidor accrued lease payments relating to leases recognised in the Statement of Financial Position at 30 June 2019.The recognised right-of-use assets relate to the following: 1 JULY 2019$MProperty Leases7,339Non-property Leases142Total right-of-use assets7,481 The application of AASB 16 impacted the following items in the Statement of Financial Position on 1 July 2019:• recognition of right-of-use assets: $7,481 million• recognition of lease liabilities: $8,856 million• increase in deferred tax assets: $356 million• elimination of lease related provisions and accruals recognised under previous lease accounting: $188 millionThe net impact to retained earnings on 1 July 2019 was a decrease of $831 million.The impact of the adoption of AASB 16 on the Group’s Statement of Profit or Loss is set out below: PRE-AASB 1628 JUNE 2020$MAASB 16IMPACT$MSTATUTORY28 JUNE 2020$MEBIT1,3873751,762Financing costs(44)(399)(443)Profit before tax1,343(24)1,319Income tax expense(348)7(341)Profit after income tax995(17)978 Coles Group Limited 2020 Annual Report1487.5 New accounting standards and interpretations (continued)Practical expedients appliedIn applying AASB 16 for the first time, the Group has applied the following practical expedients permitted by the standard:• the use of a single discount rate to a portfolio of leases with reasonably similar characteristics• reliance on previous onerous lease assessments• the accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as short-termleases• the exclusion of initial direct costs from the measurement of the right-of-use asset at the date of initial application• the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application.Instead, for contracts entered into before the transition date, the Group has relied on its previous assessment underAASB 117 and Interpretation 4 Determining whether an arrangement contains a lease.New and revised Australian Accounting Standards and Interpretations on issue but not yet effectiveThere are no standards that are not yet effective that would be expected to have a material impact on the Group in thecurrent or future reporting periods.7.6 Events after the reporting periodOn 18 August 2020, the Directors determined a final dividend of 27.5 cents per fully paid ordinary share to be paid on29 September 2020, fully franked at the corporate tax rate of 30%. The aggregate amount of the final dividend to be paidout of profits, but not recognised as a liability at 28 June 2020, is expected to be $367 million.Subsequent to the reporting date, the Group has monitored business performance and relevant external factors includingthe ongoing government response to the COVID-19 pandemic. No adjustments to the key judgements, estimates orassumptions impacting the consolidated financial statements at the reporting date have been identified.Coles Group Limited 2020 Annual Report1491. 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 consolidatedentities;(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they becomedue and payable.2. A statement of compliance with the International Financial Reporting Standards is included in the Basis of Preparationand 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 from the ManagingDirector and Chief Executive Officer and Chief Financial Officer for the financial year ended 28 June 2020.4. As at the date of this declaration, there are reasonable grounds to believe that the members of the closed groupidentified in Note 5.4 Subsidiaries to the financial statements will be able to meet any obligations or liabilities to whichthey are, or may become, subject by virtue of the Deed of Cross Guarantee described in Note 5.4 Subsidiaries.Signed in accordance with a resolution of the directors. James Graham AMSteven CainChairman18 August 2020Managing Director and Chief Executive Officer18 August 2020 Directors’ Declaration150Coles Group Limited 2020 Annual ReportA member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards LegislationErnst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/auIndependent Auditor’s Report to the Members of Coles Group LimitedReport on the Audit of the Financial ReportOpinionWe have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries(collectively, the Group), which comprises the Consolidated Statement of Financial Position as at28 June 2020, the Consolidated Statement of Profit or Loss, Consolidated Statement of OtherComprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement ofCash Flows for the year then ended, notes to the consolidated financial statements, including asummary of significant accounting policies, and the Directors’ Declaration.In our opinion, the accompanying Financial Report of the Group is in accordance with the CorporationsAct 2001, including:(a) giving a true and fair view of the consolidated financial position of the Group as at 28 June 2020and 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 OpinionWe conducted our audit in accordance with Australian Auditing Standards. Our responsibilities underthose standards are further described in the Auditor’s Responsibilities for the Audit of the FinancialReport section of our report. We are independent of the Group in accordance with the auditorindependence requirements of the Corporations Act 2001 and the ethical requirements of theAccounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for ProfessionalAccountants (including Independence Standards) (the Code) that are relevant to our audit of theFinancial Report in Australia. We have also fulfilled our other ethical responsibilities in accordancewith the Code.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basisfor our opinion.Key Audit MattersKey audit matters are those matters that, in our professional judgement, were of most significance inour audit of the Financial Report of the current year. These matters were addressed in the context ofour audit of the Financial Report as a whole, and in forming our opinion thereon, but we do notprovide a separate opinion on these matters. For each matter below, our description of how our auditaddressed the matter is provided in that context.We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of theFinancial Report section of our report, including in relation to these matters. Accordingly, our auditincluded the performance of procedures designed to respond to our assessment of the risks ofmaterial misstatement of the Financial Report. The results of our audit procedures, including theprocedures performed to address the matters below, provide the basis for our audit opinion on theaccompanying Financial Report.A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards LegislationErnst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/auIndependent Auditor’s Report to the Members of Coles Group LimitedReport on the Audit of the Financial ReportOpinionWe have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries(collectively, the Group), which comprises the Consolidated Statement of Financial Position as at28 June 2020, the Consolidated Statement of Profit or Loss, Consolidated Statement of OtherComprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement ofCash Flows for the year then ended, notes to the consolidated financial statements, including asummary of significant accounting policies, and the Directors’ Declaration.In our opinion, the accompanying Financial Report of the Group is in accordance with the CorporationsAct 2001, including:(a) giving a true and fair view of the consolidated financial position of the Group as at 28 June 2020and 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 OpinionWe conducted our audit in accordance with Australian Auditing Standards. Our responsibilities underthose standards are further described in the Auditor’s Responsibilities for the Audit of the FinancialReport section of our report. We are independent of the Group in accordance with the auditorindependence requirements of the Corporations Act 2001 and the ethical requirements of theAccounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for ProfessionalAccountants (including Independence Standards) (the Code) that are relevant to our audit of theFinancial Report in Australia. We have also fulfilled our other ethical responsibilities in accordancewith the Code.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basisfor our opinion.Key Audit MattersKey audit matters are those matters that, in our professional judgement, were of most significance inour audit of the Financial Report of the current year. These matters were addressed in the context ofour audit of the Financial Report as a whole, and in forming our opinion thereon, but we do notprovide a separate opinion on these matters. For each matter below, our description of how our auditaddressed the matter is provided in that context.We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of theFinancial Report section of our report, including in relation to these matters. Accordingly, our auditincluded the performance of procedures designed to respond to our assessment of the risks ofmaterial misstatement of the Financial Report. The results of our audit procedures, including theprocedures performed to address the matters below, provide the basis for our audit opinion on theaccompanying Financial Report.151A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation1. Commercial income Why significantHow our audit addressed the key audit matter Commercial income (also referred to in theretail industry as “Supplier rebates”) comprisesdiscounts and rebates received by the Groupfrom its suppliers.The value and timing of commercial incomerecognised through the Consolidated Statementof Profit or Loss requires judgement and theconsideration of a number of factors including: ► The terms of each individual rebateagreementAct 2001, including:recognition and measurement of amountsrelated to these arrangements;► The nature and substance of the► We performed comparisons of the various(a) giving a true and fair view of the consolidated financial position of the Group as at 28 June 2020and of its consolidated financial performance for the year ended on that date; andarrangement to determine whether thearrangements against the prior year,amount reflects a reduction in the purchaseincluding analysis of ageing profiles and(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.price of inventory, requiring the rebate towhere material variances were identified, be applied against the carrying value ofinventory or can be otherwise recognised inthe Consolidated Statement of Profit orLoss► The application of Australian AccountingStandards and the Group’s relatedprocesses and controls to thesearrangements.Disclosures relating to the measurement andrecognition of commercial income can be foundin Note 2.4 Inventories.Our audit procedures in respect of commercialincome included the following:► We gained an understanding of the natureof each material type of commercialincome and assessed the significantagreements in place;► We assessed the design and effectivenessof relevant controls in place relating to theobtained supporting evidence;► We selected a sample of supplieragreements and assessed whetherappropriate agreements or otherdocumentation supported the recognitionand measurement of the rebates in the 28June 2020 Financial Report, including anassessment of amounts recorded beforeand after the balance date; and► We inquired of the Group including businesscategory managers, supply chain managers and procurement management as to theexistence of any non-standard agreementsor side arrangements.for our opinion. A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards LegislationErnst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/auIndependent Auditor’s Report to the Members of Coles Group LimitedReport on the Audit of the Financial ReportOpinionWe have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries(collectively, the Group), which comprises the Consolidated Statement of Financial Position as at28 June 2020, the Consolidated Statement of Profit or Loss, Consolidated Statement of OtherComprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement ofCash Flows for the year then ended, notes to the consolidated financial statements, including asummary of significant accounting policies, and the Directors’ Declaration.In our opinion, the accompanying Financial Report of the Group is in accordance with the CorporationsBasis for OpinionWe conducted our audit in accordance with Australian Auditing Standards. Our responsibilities underthose standards are further described in the Auditor’s Responsibilities for the Audit of the FinancialReport section of our report. We are independent of the Group in accordance with the auditorindependence requirements of the Corporations Act 2001 and the ethical requirements of theAccounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for ProfessionalAccountants (including Independence Standards) (the Code) that are relevant to our audit of theFinancial Report in Australia. We have also fulfilled our other ethical responsibilities in accordancewith the Code.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basisKey Audit MattersKey audit matters are those matters that, in our professional judgement, were of most significance inour audit of the Financial Report of the current year. These matters were addressed in the context ofour audit of the Financial Report as a whole, and in forming our opinion thereon, but we do notprovide a separate opinion on these matters. For each matter below, our description of how our auditaddressed the matter is provided in that context.We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of theFinancial Report section of our report, including in relation to these matters. Accordingly, our auditincluded the performance of procedures designed to respond to our assessment of the risks ofmaterial misstatement of the Financial Report. The results of our audit procedures, including theprocedures performed to address the matters below, provide the basis for our audit opinion on theaccompanying Financial Report.Coles Group Limited 2020 Annual Report152A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation2. Impairment of non-current assets including intangible assets Why significantHow our audit addressed the key audit matterThe determination of the recoverable amountsof non-current assets including property, plantand equipment, right of use assets, goodwill andother intangible assets required significantjudgement by the Group.Impairment assessments are complex andinvolve significant management judgement. Theassessment completed by the Group includesnumerous assumptions and estimates that willbe impacted by future performance and marketconditions. This includes the potential futureimpacts of the COVID-19 pandemic on incomeand expenses.Key assumptions, judgements and estimatesapplied in the Group’s impairment assessmentare set out in Note 4.1.Based upon the disclosed sensitivity analysis,changes to the key assumptions applied in theimpairment test are not expected to give rise toan impairment of the carrying value of theGroup’s cash generating units.We have audited the Financial Report of Coles Gro(collectively, the Group), which comprises the Cons28 June 2020, the Consolidated Statement of ProfComprehensive Income, Consolidated Statement oCash Flows for the year then ended, notes to the csummary of significant accounting policies, and thIn our opinion, the accompanying Financial ReportAct 2001, including:(a) giving a true and fair view of the consolidated fand of its consolidated financial performance f(b) complying with Australian Accounting StandarBasis for OpinionWe conducted our audit in accordance with Australthose standards are further described in the AuditReport section of our report. We are independent oindependence requirements of the Corporations AcAccounting Professional and Ethical Standards BoaAccountants (including Independence Standards) (tFinancial Report in Australia. We have also fulfilledwith the Code.We believe that the audit evidence we have obtainefor our opinion.Our audit procedures included an evaluation ofthe following assumptions utilised in the Group’sassessment:► Determination of cash generating units;► Forecast cash flows, which were based onthe Group’s Board approved internal fiveyear forecasts;► Long term inflation and growth rates;► Discount rates;► Comparative industry valuation multiples;and► Other market evidence.In performing our procedures, we consideredwhether the Group’s forecasts considered thepotential future impacts of the COVID-19pandemic on income and expenses.We assessed whether the Group’s impairmentmodels were in accordance with AustralianAccounting Standards, as well as themathematical accuracy of the calculations.We also considered the adequacy of theFinancial Report disclosures regarding theimpairment testing approach, key assumptionsand sensitivity analysis.up Limited (the Company) and its subsidiariesolidated Statement of Financial Position as atit or Loss, Consolidated Statement of Otherf Changes in Equity and Consolidated Statement ofonsolidated financial statements, including ae Directors’ Declaration.of the Group is in accordance with the Corporationsinancial position of the Group as at 28 June 2020or the year ended on that date; andds and the Corporations Regulations 2001.ian Auditing Standards. Our responsibilities underor’s Responsibilities for the Audit of the Financialf the Group in accordance with the auditort 2001 and the ethical requirements of therd’s APES 110 Code of Ethics for Professionalhe Code) that are relevant to our audit of theour other ethical responsibilities in accordanced is sufficient and appropriate to provide a basis A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards LegislationErnst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/auIndependent Auditor’s Report to the Members of Coles Group LimitedReport on the Audit of the Financial ReportOpinionKey Audit MattersKey audit matters are those matters that, in our professional judgement, were of most significance inour audit of the Financial Report of the current year. These matters were addressed in the context ofour audit of the Financial Report as a whole, and in forming our opinion thereon, but we do notprovide a separate opinion on these matters. For each matter below, our description of how our auditaddressed the matter is provided in that context.We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of theFinancial Report section of our report, including in relation to these matters. Accordingly, our auditincluded the performance of procedures designed to respond to our assessment of the risks ofmaterial misstatement of the Financial Report. The results of our audit procedures, including theprocedures performed to address the matters below, provide the basis for our audit opinion on theaccompanying Financial Report.153A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation3. IT environment Why significantHow our audit addressed the key audit matter A significant part of the Group’s financialprocesses are heavily reliant on IT systems withautomated processes and controls over thecapturing, valuing and recording oftransactions.This was a key audit matter because of the:► complex IT environment supporting diversebusiness processes, with varying levels ofintegration between them;► mix of manual and automated controls;► multiple internal and outsourced supportarrangements; and► continuing enhancements to the Group’s ITsystems which are significant to our audit.We performed procedures to understand the ITenvironment, including procedures to identifythe Group’s manual and automated controlsrelevant to Financial Reporting.We tested the Group’s controls which includedassessing the key IT controls over changes madeto the material Financial Reporting systems andcontrols over appropriate access to thesesystems.4. AASB 16 Leases Why significantthose standards are further described in the AuditReport section of our report. We are independent oHow our audit addressed the key audit matterr’s Responsibilities for the Audit of the Financialf the Group in accordance with the auditor The Group adopted AASB 16 Leases (“AASB16”) from 1 July 2019. The adoption of thisaccounting standard is inherently complex dueto the need to apply its requirements to:► existing commitments, including embeddedlease agreements; ► the volume of operating leases held by thefor our opinion.liabilities, as well as related depreciation andGroup; andKey Audit Mattersinterest expense recognised through theConsolidated Statement of Profit or Loss. ► the judgements applied by managementwhen determining how to apply keyrequirements of this standard such as theimpact of lease extension options and thecalculation of incremental borrowing rates.Key assumptions, judgements and estimatesapplied to the Group’s leases are set out inNotes 2.7 and 7.5.We assessed the Group’s process fordetermining the impact of the new standard.We assessed the analysis of the financial impactof the new standard and the accounting policies,estimates and judgements made in respect ofthe Group’s right of use assets and leaseWe selected a sample of lease agreements todetermine the appropriateness of thejudgements applied including:► the treatment of lease extension options;► the treatment of sub-lease arrangements;► the identification of non-lease components;► the treatment of adjustments to leasepayments (both fixed and variable rateadjustments); ►►the impact of contract variations;the incremental borrowing rate determinedby the Group;accompanying Financial Report. A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards LegislationErnst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/auIndependent Auditor’s Report to the Members of Coles Group LimitedReport on the Audit of the Financial ReportOpinionWe have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries(collectively, the Group), which comprises the Consolidated Statement of Financial Position as at28 June 2020, the Consolidated Statement of Profit or Loss, Consolidated Statement of OtherComprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement ofCash Flows for the year then ended, notes to the consolidated financial statements, including asummary of significant accounting policies, and the Directors’ Declaration.In our opinion, the accompanying Financial Report of the Group is in accordance with the CorporationsAct 2001, including:(a) giving a true and fair view of the consolidated financial position of the Group as at 28 June 2020and 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 OpinionWe conducted our audit in accordance with Australian Auditing Standards. Our responsibilities underindependence requirements of the Corporations Act 2001 and the ethical requirements of theAccounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for ProfessionalAccountants (including Independence Standards) (the Code) that are relevant to our audit of theFinancial Report in Australia. We have also fulfilled our other ethical responsibilities in accordancewith the Code.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basisKey audit matters are those matters that, in our professional judgement, were of most significance inour audit of the Financial Report of the current year. These matters were addressed in the context ofour audit of the Financial Report as a whole, and in forming our opinion thereon, but we do notprovide a separate opinion on these matters. For each matter below, our description of how our auditaddressed the matter is provided in that context.We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of theFinancial Report section of our report, including in relation to these matters. Accordingly, our auditincluded the performance of procedures designed to respond to our assessment of the risks ofmaterial misstatement of the Financial Report. The results of our audit procedures, including theprocedures performed to address the matters below, provide the basis for our audit opinion on the Coles Group Limited 2020 Annual Report154A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation Why significantReport on the Audit of the Financial RepHow our audit addressed the key audit matterort ► the application of practical expedientsavailable under AASB 16; and► whether there were any material contractscontaining a lease.We evaluated the effectiveness of the Group’sprocesses and controls to capture and measurethe right of use asset and associated liabilityincluding the completeness of the balances.We involved our capital and debt advisory specialists to assess the Group’s incrementalborrowing rates.Act 2001, including: We assessed the calculation of the adjustmentto opening retained earnings calculated by theGroup.We assessed the adequacy of disclosuresincluded in the Financial Report.5. Inventory existence Why significantthose standards are further described in the AuditReport section of our report. We are independentHow our audit addressed the key audit matteror’s Responsibilities for the Audit of the Financialof the Group in accordance with the auditor At 28 June 2020, the Group held inventories of$2,166 million. Being one of the mostsignificant balances on the Consolidated Statement of Financial Position, the Group’sinventory verification process is extensive andwith the Code.processes throughout the year. Thisoccurs routinely throughout the financial year.virtually through video conferencingWe believe that the audit evidence we have obtained is sufficient and appropriate to provide a basisThis inventory is held at geographically diverselocations around Australia at various stores anddistribution centres.for our opinion.Key Audit Matterstechnology due to the Government’srecommendations to work from home as aresult of the COVID-19 pandemic;included observing a number of stocktakes The Group’s key estimates in respect ofinventories is disclosed in Note 2.4 of theFinancial Report.Our audit procedures included the following:► Selected a sample of stores so as toobserve and assess the Group’s stocktake► For the stocktakes we observed, weassessed whether the required adjustmentto inventory determined by the stocktakewas accurate and processed correctly;► Observed and assessed the daily stocktakeprocess at a sample of distribution centresnear period end;► Assessed whether daily counts occurred atdistribution centres during the year; and► For a select number of distribution centres managed by third parties, we obtainedstock confirmation letters.accompanying Financial Report. A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards LegislationErnst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/auIndependent Auditor’s Report to the Members of Coles Group LimitedOpinionWe have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries(collectively, the Group), which comprises the Consolidated Statement of Financial Position as at28 June 2020, the Consolidated Statement of Profit or Loss, Consolidated Statement of OtherComprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement ofCash Flows for the year then ended, notes to the consolidated financial statements, including asummary of significant accounting policies, and the Directors’ Declaration.In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations(a) giving a true and fair view of the consolidated financial position of the Group as at 28 June 2020and 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 OpinionWe conducted our audit in accordance with Australian Auditing Standards. Our responsibilities underindependence requirements of the Corporations Act 2001 and the ethical requirements of theAccounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for ProfessionalAccountants (including Independence Standards) (the Code) that are relevant to our audit of theFinancial Report in Australia. We have also fulfilled our other ethical responsibilities in accordanceKey audit matters are those matters that, in our professional judgement, were of most significance inour audit of the Financial Report of the current year. These matters were addressed in the context ofour audit of the Financial Report as a whole, and in forming our opinion thereon, but we do notprovide a separate opinion on these matters. For each matter below, our description of how our auditaddressed the matter is provided in that context.We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of theFinancial Report section of our report, including in relation to these matters. Accordingly, our auditincluded the performance of procedures designed to respond to our assessment of the risks ofmaterial misstatement of the Financial Report. The results of our audit procedures, including theprocedures performed to address the matters below, provide the basis for our audit opinion on the 155A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards LegislationInformation Other than the Financial Report and Auditor’s Report ThereonThe directors are responsible for the other information. The other information comprises theinformation included in the Company’s 2020 Annual Report, but does not include the Financial Reportand our auditor’s report thereon. We obtained the Operating and Financial Review, Board of Directorssection and Directors’ Report that are to be included in the Annual Report, prior to the date of thisauditor’s report, and we expect to obtain the remaining sections of the Annual report after the date ofthis auditor’s report.Our opinion on the Financial Report does not cover the other information and accordingly we do notexpress any form of assurance conclusion thereon, with the exception of the Remuneration Reportand our related assurance opinion.In connection with our audit of the Financial Report, our responsibility is to read the other informationand, in doing so, consider whether the other information is materially inconsistent with the FinancialReport 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 thisauditor’s report, we conclude that there is a material misstatement of this other information, we arerequired to report that fact. We have nothing to report in this regard.Responsibilities of the Directors for the Financial ReportThe Directors of the Company are responsible for the preparation of the Financial Report that gives atrue and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001and for such internal control as the Directors determine is necessary to enable the preparation of theFinancial Report that gives a true and fair view and is free from material misstatement, whether dueto fraud or error.In preparing the Financial Report, the Directors are responsible for assessing the Group’s ability tocontinue as a going concern, disclosing, as applicable, matters relating to going concern and using thegoing concern basis of accounting unless the Directors either intend to liquidate the Group or to ceaseoperations, or have no realistic alternative but to do so.Auditor’s Responsibilities for the Audit of the Financial ReportOur objectives are to obtain reasonable assurance about whether the Financial Report as a whole isfree from material misstatement, whether due to fraud or error, and to issue an auditor’s report thatincludes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that anaudit conducted in accordance with the Australian Auditing Standards will always detect a materialmisstatement when it exists. Misstatements can arise from fraud or error and are considered materialif, individually or in the aggregate, they could reasonably be expected to influence the economicdecisions of users taken on the basis of this Financial Report.As part of an audit in accordance with the Australian Auditing Standards, we exercise professionaljudgement and maintain professional scepticism throughout the audit. We also:A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards LegislationErnst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/auIndependent Auditor’s Report to the Members of Coles Group LimitedReport on the Audit of the Financial ReportOpinionWe have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries(collectively, the Group), which comprises the Consolidated Statement of Financial Position as at28 June 2020, the Consolidated Statement of Profit or Loss, Consolidated Statement of OtherComprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement ofCash Flows for the year then ended, notes to the consolidated financial statements, including asummary of significant accounting policies, and the Directors’ Declaration.In our opinion, the accompanying Financial Report of the Group is in accordance with the CorporationsAct 2001, including:(a) giving a true and fair view of the consolidated financial position of the Group as at 28 June 2020and 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 OpinionWe conducted our audit in accordance with Australian Auditing Standards. Our responsibilities underthose standards are further described in the Auditor’s Responsibilities for the Audit of the FinancialReport section of our report. We are independent of the Group in accordance with the auditorindependence requirements of the Corporations Act 2001 and the ethical requirements of theAccounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for ProfessionalAccountants (including Independence Standards) (the Code) that are relevant to our audit of theFinancial Report in Australia. We have also fulfilled our other ethical responsibilities in accordancewith the Code.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basisfor our opinion.Key Audit MattersKey audit matters are those matters that, in our professional judgement, were of most significance inour audit of the Financial Report of the current year. These matters were addressed in the context ofour audit of the Financial Report as a whole, and in forming our opinion thereon, but we do notprovide a separate opinion on these matters. For each matter below, our description of how our auditaddressed the matter is provided in that context.We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of theFinancial Report section of our report, including in relation to these matters. Accordingly, our auditincluded the performance of procedures designed to respond to our assessment of the risks ofmaterial misstatement of the Financial Report. The results of our audit procedures, including theprocedures performed to address the matters below, provide the basis for our audit opinion on theaccompanying Financial Report.Coles Group Limited 2020 Annual Report156A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation• Identify and assess the risks of material misstatement of the Financial Report, whether due tofraud or error, design and perform audit procedures responsive to those risks, and obtain auditevidence that is sufficient and appropriate to provide a basis for our opinion. The risk of notdetecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control.• Obtain an understanding of internal control relevant to the audit in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Group’s internal control.• Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates and related disclosures made by the Directors.• Conclude on the appropriateness of the Directors’ use of the going concern basis of accountingand, based on the audit evidence obtained, whether a material uncertainty exists related toevents or conditions that may cast significant doubt on the Group’s ability to continue as a goingconcern. If we conclude that a material uncertainty exists, we are required to draw attention inour auditor’s report to the related disclosures in the Financial Report or, if such disclosures areinadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained upto the date of our auditor’s report. However, future events or conditions may cause the Groupto cease to continue as a going concern.• Evaluate the overall presentation, structure and content of the Financial Report, including thedisclosures, and whether the Financial Report represents the underlying transactions andevents in a manner that achieves fair presentation.• Obtain sufficient appropriate audit evidence regarding the financial information of the entitiesor business activities within the Group to express an opinion on the Financial Report. We areresponsible for the direction, supervision and performance of the Group audit. We remain solelyresponsible for our audit opinion.We communicate with the Directors regarding, among other matters, the planned scope and timing ofthe audit and significant audit findings, including any significant deficiencies in internal control that weidentify during our audit.We also provide the Directors with a statement that we have complied with relevant ethicalrequirements regarding independence, and to communicate with them all relationships and othermatters that may reasonably be thought to bear on our independence, and where applicable, actionstaken to eliminate threats or safeguards applied.From the matters communicated to the Directors, we determine those matters that were of mostsignificance in the audit of the Financial Report of the current year and are therefore the key auditmatters. We describe these matters in our auditor’s report unless law or regulation precludes publicdisclosure about the matter or when, in extremely rare circumstances, we determine that a mattershould not be communicated in our report because the adverse consequences of doing so wouldreasonably be expected to outweigh the public interest benefits of such communication.A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards LegislationErnst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/auIndependent Auditor’s Report to the Members of Coles Group LimitedReport on the Audit of the Financial ReportOpinionWe have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries(collectively, the Group), which comprises the Consolidated Statement of Financial Position as at28 June 2020, the Consolidated Statement of Profit or Loss, Consolidated Statement of OtherComprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement ofCash Flows for the year then ended, notes to the consolidated financial statements, including asummary of significant accounting policies, and the Directors’ Declaration.In our opinion, the accompanying Financial Report of the Group is in accordance with the CorporationsAct 2001, including:(a) giving a true and fair view of the consolidated financial position of the Group as at 28 June 2020and 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 OpinionWe conducted our audit in accordance with Australian Auditing Standards. Our responsibilities underthose standards are further described in the Auditor’s Responsibilities for the Audit of the FinancialReport section of our report. We are independent of the Group in accordance with the auditorindependence requirements of the Corporations Act 2001 and the ethical requirements of theAccounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for ProfessionalAccountants (including Independence Standards) (the Code) that are relevant to our audit of theFinancial Report in Australia. We have also fulfilled our other ethical responsibilities in accordancewith the Code.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basisfor our opinion.Key Audit MattersKey audit matters are those matters that, in our professional judgement, were of most significance inour audit of the Financial Report of the current year. These matters were addressed in the context ofour audit of the Financial Report as a whole, and in forming our opinion thereon, but we do notprovide a separate opinion on these matters. For each matter below, our description of how our auditaddressed the matter is provided in that context.We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of theFinancial Report section of our report, including in relation to these matters. Accordingly, our auditincluded the performance of procedures designed to respond to our assessment of the risks ofmaterial misstatement of the Financial Report. The results of our audit procedures, including theprocedures performed to address the matters below, provide the basis for our audit opinion on theaccompanying Financial Report.157A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards LegislationReport on the Audit of the Remuneration ReportOpinion on the Remuneration ReportWe have audited the Remuneration Report included in the Directors’ report for the year ended28 June 2020.In our opinion, the Remuneration Report of Coles Group Limited for the year ended 28 June 2020,complies with section 300A of the Corporations Act 2001.ResponsibilitiesThe Directors of the Company are responsible for the preparation and presentation of theRemuneration Report in accordance with section 300A of the Corporations Act 2001. Ourresponsibility is to express an opinion on the Remuneration Report, based on our audit conducted inaccordance with Australian Auditing Standards.Ernst & YoungFiona CampbellPartnerMelbourne18 August 2020A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards LegislationErnst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/auIndependent Auditor’s Report to the Members of Coles Group LimitedReport on the Audit of the Financial ReportOpinionWe have audited the Financial Report of Coles Group Limited (the Company) and its subsidiaries(collectively, the Group), which comprises the Consolidated Statement of Financial Position as at28 June 2020, the Consolidated Statement of Profit or Loss, Consolidated Statement of OtherComprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement ofCash Flows for the year then ended, notes to the consolidated financial statements, including asummary of significant accounting policies, and the Directors’ Declaration.In our opinion, the accompanying Financial Report of the Group is in accordance with the CorporationsAct 2001, including:(a) giving a true and fair view of the consolidated financial position of the Group as at 28 June 2020and 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 OpinionWe conducted our audit in accordance with Australian Auditing Standards. Our responsibilities underthose standards are further described in the Auditor’s Responsibilities for the Audit of the FinancialReport section of our report. We are independent of the Group in accordance with the auditorindependence requirements of the Corporations Act 2001 and the ethical requirements of theAccounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for ProfessionalAccountants (including Independence Standards) (the Code) that are relevant to our audit of theFinancial Report in Australia. We have also fulfilled our other ethical responsibilities in accordancewith the Code.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basisfor our opinion.Key Audit MattersKey audit matters are those matters that, in our professional judgement, were of most significance inour audit of the Financial Report of the current year. These matters were addressed in the context ofour audit of the Financial Report as a whole, and in forming our opinion thereon, but we do notprovide a separate opinion on these matters. For each matter below, our description of how our auditaddressed the matter is provided in that context.We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of theFinancial Report section of our report, including in relation to these matters. Accordingly, our auditincluded the performance of procedures designed to respond to our assessment of the risks ofmaterial misstatement of the Financial Report. The results of our audit procedures, including theprocedures performed to address the matters below, provide the basis for our audit opinion on theaccompanying Financial Report.Coles Group Limited 2020 Annual Report158ShareholderInformationColes Group Limited 2020 Annual Report159Financial ReportListing informationColes Group Limited is listed, and our issued shares are quoted on the Australian Securities Exchange (ASX) under thecode: COL.Substantial shareholdings in Coles Group Limited as at 26 August 2020The number of shares to which each substantial holder and the substantial holders’ associates have a relevant interest, asdisclosed in substantial holding notices given to Coles, are as follows: HolderNumber of fully paid sharesVanguard Group66,784,433Blackrock Group83,226,846 Twenty largest ordinary fully paid shareholders as at 26 August 2020 Coles Group LimitedNumber of fullypaid shares% of issuedcapital1. HSBC Custody Nominees (Australia) Limited350,905,77326.312. J P Morgan Nominees Australia Pty Limited208,029,60615.603. Citicorp Nominees Pty Limited102,343,7887.674. Wesfarmers Retail Holdings Pty Ltd65,362,5564.905. National Nominees Limited47,703,8463.586. BNP Paribas Nominees Pty Ltd < Agency Lending DRP A/C>28,552,4922.147. BNP Paribas Noms Pty Ltd 17,285,4761.308. Citicorp Nominees Pty Limited 11,951,7580.909. Australian Foundation Investment Company Limited6,722,5000.5010. HSBC Custody Nominees (Australia) Limited- GSCO ECA6,551,6160.4911. HSBC Custody Nominees (Australia) Limited 6,375,9550.4812. ARGO Investments Limited5,040,0270.3813. Netwealth Investments Limited 3,786,7810.2814. Milton Corporation Limited2,877,3750.2215. HSBC Custody Nominees (Australia) Limited2,312,7940.1716. Australian Executor Trustees Limited 2,271,4550.1717. CPU Share Plans Pty Ltd 2,138,2530.1618. AMP Life Limited1,939,7790.1519. BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd 1,589,2060.1220. Mr Peter Alexander Brown1,552,8250.12 Distribution of shareholders and shareholdings as at 26 August 2020 Size of holdingNumber of shareholdersNumber of shares% of issued capital1 – 1,000361,252109,453,1588.211,001 – 5,00074,930157,254,11911.795,001 – 10,0008,87661,678,3644.6210,001 – 100,0004,45088,954,1946.67100,001 and over144916,589,86168.71Total449,6521,333,929,696100 There were 27,346 shareholders holding less than a marketable parcel ($500).Shareholder InformationColes Group Limited 2020 Annual Report160Coles Group Limited 2020 Annual ReportVoting rightsVotes of shareholders are governed by the Company’s Constitution. In broad summary, but without prejudice to theprovisions 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 securitiesAs at 26 August 2020, 1,051,774 performance rights with 10 holders were on issue pursuant to Coles’ equity incentive plan.On market share acquisitionsDuring FY20, 1,648,620 Coles ordinary shares were purchased on market at an average price of $15.64 per share for thepurposes of various Coles employee incentive schemes.There is no current on-market buy-back of the Company’s shares.Corporate Governance StatementA copy of the Corporate Governance Statement can be found on our website atwww.colesgroup.com.au/corporategovernance.Coles Group Limited 2020 Annual Report161Corporate DirectoryRegistered office800-838 Toorak RoadHawthorn EastVIC 3123 AustraliaTelephone+61 3 9829 5111Websitewww.colesgroup.com.auChairmanMr James Graham AMManaging Director and Chief Executive OfficerMr Steven CainNon-executive DirectorsMr James Graham AMMr David CheesewrightMs Jacqueline ChowMs Abi ClelandMr Richard FreudensteinMs Wendy StopsMr Zlatko TodorcevskiCompany SecretaryMs Daniella PereiraAuditorErnst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaColes Share RegistryComputershare Investor Service Pty LimitedYarra Falls452 Johnston StreetAbbotsfordVIC 3067 AustraliaPostal addressGPO Box 2975Melbourne VIC 3001 AustraliaTelephone1300 171 785 (within Australia)+61 3 9415 4078 (outside Australia)Onlinewww.investorcentre.com/contactWebsitewww.computershare.comShareholder Calendar* EventDateRecord date for final dividend28 August 2020Final dividend payment date29 September 2020Coles Group LimitedAnnual General Meeting5 November 2020Half-year end3 January 2021Year-end27 June 2021 * Timing of events is subject to change.Annual General MeetingThe 2020 Annual General Meeting of Coles Group Limitedwill be held as a virtual meeting via an online platform onThursday 5 November 2020, commencing at 10.30am (AEDT).Information on how shareholders and proxyholders canview and participate in the meeting can be found on theCompany’s website and in the Notice of Meeting.Coles’ Notice of Annual General Meeting has been releasedon the ASX Market Announcements Platform.Coles Group LimitedABN 11 004 089 936800-838 Toorak RoadHawthorn East VIC 3123

QUALITY: 100% ORIGINAL PAPER – NO PLAGIARISM – CUSTOM PAPER

Leave a Reply

Your email address will not be published. Required fields are marked *