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report 2010 annual

Summary Report


contents

excellence is... Directors and Executive Team .............................................

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About Us ..............................................................................

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Annual General Meeting ......................................................

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Chairman’s Review ..............................................................

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Foodstuffs (South Island) Community Trust ........................ 15 National Progress Report .................................................... 16 Executive Team .................................................................... 20 Auditor’s Report .................................................................. 22 Foodstuffs South Island Limited Group Financial Statements ........................................................... 23 The Network ........................................................................ 28


...we love what we do


Directors

Robin Brown

Stephen Boock

Russell McKenzie

Kevin Ryan

New World Rangiora (Chairman)

PAK’nSAVE Northlands, Christchurch (Deputy Chairman)

New World St Martins, Christchurch

New World Alexandra

Foodstuffs South Island Limited Annual Report 2010

Executive team

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Steve Anderson

Chris Knowles

Alan Malcolmson

Kim DeGarnham

Chief Executive Officer

Company Secretary

General Manager Retail Operations

General Manager Administration & Members’ Services


John Niles

Roy Bridgman

Chris McDonald

Marcel Gray

Four Square Owaka

New World Rolleston

PAK’nSAVE Dunedin

PAK’nSAVE Wainoni, Christchurch

John Mullins

Philip Wright

General Manager Wholesale Operations & Procurement

General Manager Information Technology

Malcolm Wratt Roger Davidson General Manager Finance

General Manager Property & Retail Development

Philip Lemon General Manager Trents Wholesale Limited

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About Us Foodstuffs South Island Limited is a South Island, 100% New Zealand-owned co-operative, formed in 1988 from the merger of two long-established grocery co-operatives Foodstuffs (Christchurch) Limited and Foodstuffs (Otago/Southland) Limited. Its membership consists of independent grocers who own and operate their own businesses and work together for their mutual benefit and the benefit of the co-operative. Foodstuffs South Island Ltd trades only in the South Island of New Zealand. It has two sister co-operatives, Foodstuffs (Auckland) Limited and Foodstuffs (Wellington) Co-operative Society Limited, which trade in the northern and southern sectors, respectively, of the North Island of New Zealand. The three co-operatives are independent of each other and have their own boards and executive structures. The three co-operatives jointly own Foodstuffs (New Zealand) Limited, a small non-trading entity, which represents the three co-operatives’ interests on issues of national or grocery specific importance. They have also jointly entered into a purchasing group with an Australian grocery wholesaler to achieve economies of scale for the purchase of house-branded product.

Foodstuffs South Island Limited Annual Report 2010

Currently, Foodstuffs South Island Limited has a membership of 722 banner group, independent grocer or foodservice members.

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These members recognise that shareholding in the co-operative confers on its members the right to enjoy the benefits of the co-operative. The shares are not held as a form of investment in equity shares. As such, our members are caretakers of the co-operative and its assets. They have a responsibility to hand them on to enable future generations of grocers to trade. The co-operative is principally funded using Retained Patronage Shares (previously five-year Redeemable Preference Shares). These shares

are issued to our members in direct ratio to their last year’s trading with the co-operative and paid for by deferring the physical payout of the yearend rebate of profits until each tranche of shares is redeemed. Our membership generally falls into two categories; independent grocers trading as members of one of our banner groups: PAK’nSAVE food warehouses New World supermarkets Four Square supermarkets On the Spot convenience stores Henry’s Beer, Wine and Spirits or members who trade independently of these groups in the convenience grocery or foodservice industries. Over recent years, the foodservice industry and the number of customers/members involved in that industry have grown dramatically. These people trade with our wholly-owned subsidiary, Trents Wholesale Limited. This subsidiary was specifically created to service this sector of the South Island economy and now has a strong South Island-wide customer base. Trents trades via seven Cash’nCarry sites throughout the South Island or through one of our Trents distribution partners. Many of our grocery members lease their supermarket or shop premises from the Company which, in turn, is the registered proprietor or holds the head lease of the property concerned. The Company offers a substantial degree of assistance to its members as well as its core activity as a wholesale merchant. These ancillary activities include the marketing of their business and products, industry-related training and education, food safety programmes, business services, merchant guarantee funding arrangements with major banks, and, at-call deposit facilities for trading members, former members and related parties.


Annual General Meeting The 22nd Annual General Meeting of Shareholders of Foodstuffs South Island Limited will be held on Tuesday, 20 July 2010 at the Dunedin office of the Company, Midland Street, Dunedin at 5.00pm.

Ordinary Business 1. To receive, consider and adopt the Directors’ Report, Group Income Statements, Statements of Comprehensive Income, Statements of Changes in Shareholders’ Equity, Balance Sheets and Auditors’ Report for the year ended 28 February 2010. 2. To receive the results of the postal ballot conducted to elect two directors. The vacancies on the Board have been caused by reason of the retirement by rotation of Mr Kevin Ryan and from a casual vacancy occurring during the year being filled by Mr Roy Bridgman. 3. To fix the remuneration of directors for the ensuing year. 4. To record the appointment of PricewaterhouseCoopers as Auditors, and authorise the Board of Directors to fix the remuneration of the Auditors for the year to 28th February 2011. 5. To transact any other business whether by ordinary or special resolution that may be properly transacted at the Annual General Meeting. ‘A’ and ‘D’ Shareholders have the right and are entitled to attend and vote at the meeting. These members may appoint a proxy to attend and vote on their behalf. A form of proxy may be obtained from the secretary, or local managers. The completed proxy form must be deposited at the registered office of the Company not later than 48 hours before the time of the meeting. A proxy holder need not necessarily be an ‘A’ or ‘D’ Shareholder of the Company. Dated this 15th day of June 2010. By order of the board

K N DeGarnham Company Secretary

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Chairman’s Review On behalf of the Board of Directors of Foodstuffs South Island Ltd, I present to you the 22nd Annual Report which details our activities and the financial results achieved during the year ending 28 February 2010. The 2009/10 year has been very much defined by 2008/09. During the latter, New Zealand suffered, along with the rest of the World, the most significant economic downturn in my lifetime. The recession made us, as a co-operative, more resilient and wiser. It caused us to look closely at our fundamental business model, ensuring that it is still sound, then review the critical components of it. As a direct result of this, we changed our funding, firmed our arrangements with banks and worked on the calculation of gross margins. For some years, the Board has been challenged by the long-term funding of the co-operative. We have recognised there is only one total profit to be made between the wholesale purchase and retail sale of any item. We wish to balance the needs of both the co-operative and our retail members, and determine what of that profit they each get.

Retained Patronage Shares but also by topping up members’ Trading Deposit Accounts. Our banner groups traded strongly despite the difficult conditions. PAK’nSAVE and New World stores both experienced lifts in trade, and Henry’s Beer Wine & Spirits saw strong growth helped, in part, by our latest (17th) Henry’s Beer Wine & Spirits opening in Alexandra. This store was the first store to be completed with new branding and increases the presence of the Henry’s brand in Central Otago. In October 2009, we opened our 40th New World, in Lincoln, part of the southern fringe catchment area of Christchurch. Trents Wholesale Ltd, our specialist food and beverage sector company, has traded well even though the recession is having an impact in this sector. This appears to be driven by consumers still acting as conservers as they fear personal economic distress. In particular, we note some small and medium-sized businesses are under stress and we have carefully monitored the risk of bad debt when trading with them.

Foodstuffs South Island Limited Annual Report 2010

Group Sales and Profitability

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Last year, we identified promotional activity measured at the time of dispatch of product from the warehouse had tilted the profit split in favour of the member. This imbalance had consequences on the rebate mix and the ability to retain rebates for the long-term funding of the co-operative. This imbalance was corrected at the start of this financial year and has allowed about $20 million of profit to be retained in the co-operative by capitalising rebate. As a consequence, we will be able to take large steps to correct our long-term funding imbalance, by not only making up the shortfall in last year’s retention in the form of 2009

Sales growth this year was mixed, with total sales increasing $89m or 4% on last year. Initially, food price inflation drove strong revenue growth in the first six months, but this tapered off during the year. Operating profit grew $29m. This was principally due to a conscious decision referred to previously to retain margin within the co-operative. At the same time, operating expenses fell due to prudent cost control measures and a reduction in financing costs caused by lower interest rates in the market.


In total, this year’s result before members’ rebates and taxation is $33.9m or 21% ahead of last year. This improved performance is reflected in the distributions to members this year.

Distribution to Members We have continued our practice of paying monthly rebates, based on bulk and repack purchases during the year, and distributing supplier-driven rebates, directly to members. The total value of distributions to members this year is $198.2m.

In addition to these year-end rebates, there are $4.2m of dividends on Redeemable Preference Shares and Retained Patronage Shares. These dividends are issued fully imputed, which together with the imputation credits attached to the dividend on the 2009 “Top up” RPS issue, result in a total of $6.2m of imputation credits being distributed to members.

Rebates and dividends In summary, this year’s total rebates and dividends to members are: Bulk and repack rebate Sundry rebates

Of this, $137.2m has been distributed during the year by way of monthly bulk, repack and supplier rebates. Year-end rebates will total $50.6m, and will be distributed in three tranches. Firstly, there is the standard Meat, Produce and Loyalty rebate, which will be issued to members by way of 2010 Retained Patronage Shares totalling $31.0m. Secondly, there will be $12.15m issued as 2009 “Top up” Retained Patronage Shares. This issue of shares will ‘top up’ the shortfall in funding caused by last year’s lower issue. The shares will be issued at a value of 15c and then have an immediate dividend payment of 85c per share, which will be capitalised, taking them up to the Specified Value of $1.00 per share. Thirdly, there will be a special rebate called a Trading Deposit Rebate of $7.5m which will be payable to all members who are trading with us at 31st May 2010. This rebate will be distributed to members based on qualifying sales for the year ended 28 February 2010 and credited directly to their Trading Deposit Account.

Monthly cash rebates

$125.2m $12.0m $137.2m

2009 Retained Patronage shares

$12.1m

2010 Retained Patronage shares

$31.0m

Special rebate - trading credit Total Rebates

$7.5m $187.8m

Dividends on RPS shares

$4.2m

Imputation credits

$6.2m

Total value of distributions to members

$198.2m

Information Technology Project Valentine / SAP In the last Annual Report we advised that SAP within Foodstuffs had settled into a ‘business as usual’ state and the focus would shift to implementation of SAP in our retail stores. It is pleasing to report that, at the end of the financial year, there were five supermarkets fully operational on SAP along with several stores using various SAP modules. The SAP infrastructure will be implemented in all remaining PAK’nSAVE and New World stores this coming year and a plan has been developed to enable further stores to adopt the complete SAP system. The benefits SAP brings to our Retail Stores can be summarised as follows: • Increased visibility and timeliness of data to aid decision making and KPI management.

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Foodstus South Island Limited Annual Report 2010

... embracing local character and identity

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Chairman’s Review (continued) • More robust process and utilising of eCommerce. • Better margin management. • Inventory and purchasing procedures. • Operational efficiencies. Christmas Club An electronic Christmas Club system was launched in late 2009. The system replaces the old paper voucher with a modern electronic card, customer call centre and online access. The system utilises the Customer Relationship Management facility in our SAP suite of programmes.

Wholesale Operations & Procurement Our Wholesale Operations and Procurement division has concentrated on developing both a National freight solution with our sister cooperatives Foodstuffs Inbound (FIN), and a new transportation system to provide South Islandwide visibility of freight expense and freight movements.

Retail Development Last financial year, Foodstuffs (South Island) Properties Ltd undertook the expansion of several of our retail properties, developed two new stores and provided assistance to co-operative members undertaking refurbishment in leased properties.

The New World Centre City redevelopment was completed in August 2009. This was a complex development with construction taking place over a 15-month period. A new New World Timaru which was built on a site adjacent to the existing store opened in December 2009. Our third PAK’nSAVE fuel site in Dunedin opened in November 2009. New World Lincoln, which opened in October 2009, is of a unique design, bridging the gap between a Four Square operation and a much larger New World offering. When it opened, this store created a media furore such as we had never seen before and was dubbed “The supermarket of tomorrow, today”. This headline was primarily as a result of the electricity generating wind turbines in the car park. The wind turbines were installed as a trial to determine the effect they could have on lessening the purchase of electricity from the national grid. This approach complements our focus of lessening our retail members’ electricity usage when selecting plant and equipment in our supermarkets. Over the last three years, the introduction of CO2 refrigeration has been a major component of this focus and, by the end of 2010, we will have 20% of our supermarkets on CO2 refrigeration.

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... bringing you a world of difference

Foodstuffs South Island Limited Annual Report 2010

The New World Group has had a pleasing year recording sales increases over previous years.

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The New World Group full service offer to customers continues by giving customers fresh and modern stores with the latest trends. Changes to some of the stores included: • The expansion and refurbishment of New World Centre City (Dunedin) which was completed in August 2009 • Exterior painting and refurbishment of the foyer areas in New World Balclutha • Refurbishment of the foyer in Blenheim New World along with the realignment of the car park to allow better traffic flow • The opening of New World Lincoln, a key catchment area in the southern fringes of Christchurch. This development also includes wind turbines in the car park to generate additional electricity for the New World

• The redevelopment of New World Timaru resulting in a brand new, bigger and brighter store located in the Timaru suburb of Highfield. The New World Group welcomed the following new members; • Mark and Andrea Elkington who purchased New World Blenheim • Ashley and Sasha Hunter, new operators of New World Winton • Kyle and Helen Burnett, previously of Four Square Lincoln Village, operating the new New World Lincoln • Glenn & Tracey Anderson who purchased New World Waimate. The Group also recognises the retirement of the following long standing members of New World and thanks them for their contributions over many years. • Graham and Gwenda Molloy (New World Winton) • Maria Boock (New World Blenheim)


... discounted prices on everyday products

The PAK’nSAVE Group’s strong trading throughout the year reflected the changing economic climate and increasing pressure on family budgets. The national brand advertising campaign using ‘Stick Man’ has continued this year and aligns the PAK’nSAVE grocery offer with the philosophy of discounted prices on everyday products. Survey results show that PAK’nSAVE continues to provide customers with the lowest basket spend. PAK’nSAVE Dunedin fuel site opened in late 2009 and can now offer their loyal customers further savings for their everyday fuel requirements.

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... still looking after the locals

Foodstus South Island Limited Annual Report 2010

2009/2010 was a very good year for the Four Square Group, which achieved a total sales increase of 6.3% even though Four Square Lincoln Supermarket was closed on the opening of New World Lincoln.

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A number of initiatives have occurred in the group but one of the highlights is the focus on new fresh food strategies. The Four Square Group continues to develop and enhance the selection criteria for new Four Square Operators, resulting in focused, energetic people joining the group.


... total supply, every occasion

... down-to-earth appreciation

The new Trents website for online ordering and Customer Relationship Management (CRM) was implemented. This solution has provided increased web and marketing functionality. The level of interest from Trents customers for the new website has been exceptional. In May 2009, Trents commenced the supply of liquor to Liquorland franchise outlets in the South Island. This is the first step in integrating the Liquorland franchises into Foodstuffs South Island Ltd.

Henry’s Beer Wine & Spirits is making excellent progress within the South Island. The Group experienced good sale increases for the year and enjoyed a significant increase in customer count. This year the Group celebrated the opening of their 17th store in Alexandra. The opening of Henry’s Alexandra coincided with the launch of the new colours and updated branding. This bold colourful format will be introduced to the rest of the Group over 2010.

Murdoch Manufacturing has enjoyed a resurgence over the last year with the recession driving retail customers to purchase more Private Label products. The sales of these products manufactured by Murdoch, have increased within all three Foodstuffs companies’.

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Chairman’s Review (continued) Food for Thought Food for Thought is a national nutrition education programme, offered free to all primary schools within New Zealand, with a target group of years 5 and 6. Resources provided include a framework of teaching activities, nutritionist support, a supermarket enquiry visit and a sponsored healthy lunch. The Food for Thought programme is also aligned with the new New Zealand Education curriculum. To date, over 27,000 children nationwide have participated in the programme.

4. Oral Health Oral health specialists offered advice on oral health. “Energize 09 was outstanding. The free fruit boosted my fruit intake and well-being.” “The vegetables certainly helped the food bill at home. The whole initiative evoked feelings of pride in the Foodstuffs culture for caring for the health of its staff and also their families.”

Energize 09 Energize 09 launched on the 1st September and concluded on the 1st December 2009. The following initiatives were offered to staff:

“The vegetable recipe competition created a healthy sense of competition within our team. We loved the whole of Energize 09.” Papanui

1. Budgeting Sessions The 75-minute sessions provided information on budgeting, goal setting, retirement planning, managing debt, Kiwisaver, investing, saving and insurance, and were complemented with resources from Sorted.

Summary

2. Fruit One piece of fruit per person, per day, was offered to all South Island staff.

Foodstuffs South Island Limited Annual Report 2010

3. Vegetable of the Week Each Friday throughout Energize 09, a vegetable was provided free of charge to all South Island staff. The vegetable was announced on the Monday and recipes featuring the vegetable were submitted. Winners received a $25 New World Gift Card.

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Regardless of the challenges we have faced in the last year, and those which we will face this year in this changing trading environment, myself and your Board are confident that the Co-operative and its Members are in good heart and we look forward to continued mutual prosperity in the years to come.

Robin Brown Chairman


Community Trust Report I am pleased to report another successful year for the Foodstuffs (South Island) Community Trust.

Major Sponsorship We are continuing a successful partnership this year with the St John FED’s (Friends of the Emergency Department) programme. This sponsorship is helping St John grow their FED’s programme and assist the volunteers involved. They have 142 FED’s in the South Island northern region contributing 14,050 voluntary hours, and 65 volunteers in the southern region contributing 9,650 hours.

First Foundation The Trust is continuing to support Emma Muir and a new candidate Hannah Davidson in their education pursuits. The Trust has now completed the financial support component for Anthony Paul. He is continuing to complete his third year papers in landscape architecture at Lincoln University and to work with the property team during his university holidays. Emma had a successful year at Lincoln University. She is studying two majors: one in accounting and the second in finance. Emma continues to receive excellent feedback from the Foodstuffs departments she works with during the university holidays. Hannah, our new candidate, is currently in Year 13 at Dunedin’s Queen’s High School. She completed work experience at Foodstuffs head office during the Easter break and enjoyed the business experience.

Grants As well as supporting the major grant recipients, grants in the following categories were distributed by the Trust: • Education Grants $69,528 • Community Grants $141,522 • Hardship Grants $10,353

New: • Sally and Alan Malcolmson • Parry Acklin Limited – New World Roslyn – Bronze • BSM Supermarket Limited – New World Motueka – Gold • B&M Patton Limited – New World Elles Road – Bronze • G&RN Lee (2005) Limited – New World Hokitika – Gold • Kaiapoi Supermarket Limited – New World Kaiapoi – Bronze • Parrys Foodmarket Limited – New World Wanaka – Silver • Mountain Limited – New World Nelson City – Bronze • BA & NC Murray Limited – New World Northside – Bronze • Roslyn Traders Limited – New World Greymouth – Bronze • Oakwood 2010 Limited – New World Blenheim – Silver Changes to sponsor contributions S & L Parker Limited – New World Bishopdale – Bronze to Silver

Resignations I and the Trustees would like to thank Howard Smith (New World Waimate), Maria Boock (New World Blenheim) and the Boyes family (New World Greymouth) for their past financial contributions and wish them well in their future endeavours. In summary, the Foodstuffs (South Island) Community Trust is operating well and I am appreciative of all our sponsors; existing, new and those who have upgraded their contributions during the past year. It is my aim to have all our members contributing and I will continue to pursue this goal. The Trust and Trustees thank Foodstuffs personnel for their assistance, PricewaterhouseCoopers for their voluntary auditing of accounts and once again, all our sponsors.

Sponsors During the year, we welcomed new sponsors and acknowledged changes to sponsorship contributions and with the sale of three stores, we accepted some resignations.

Chris Griffin Chairman Foodstuffs (South Island) Community Trust

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National Progress Report The year ended February 2010 saw the national Foodstuffs organisation achieve a solid result in the face of difficult economic conditions. The combined wholesale turnover for the three Foodstuffs companies was $7.9 billion, up 3.9% on the 2009 result. Distributions to members in respect of the year’s trading, including rebates and dividends, increased $16.6 million to $339.1 million, an increase of 5.15% over the previous year. During the year under review, two New World stores were opened in new catchments, one in New Lynn, Auckland, and the other in Lincoln, Canterbury, and replacement New World stores were opened in Morrinsville and Timaru. The much anticipated PAK’nSAVE Wairau Road also opened its doors for the first time, as did Four Square Beachlands, on the outskirts of Auckland, and a Henry’s Beer, Wine and Spirits store in Alexandra. Further to the new store openings, major extensions and renovations to existing stores were completed at New World Remuera, New World Centre City in Dunedin, New World Balclutha, New World Blenheim, and the Four Square store at Eastbourne, Wellington. New fuel sites were opened at New World New Plymouth, New World Hutt City and PAK’nSAVE Dunedin.

Foodstuffs South Island Limited Annual Report 2010

New markets and extensions to existing markets provided an additional gross retail floor area of 13,875 sqm.

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At the end of the reporting period a number of developments were in progress. These included three new stores – New World Mt Roskill; PAK’nSAVE Papamoa; and PAK’nSAVE Te Awamutu – and store refurbishment projects at PAK’nSAVE Kapiti; PAK’nSAVE Palmerston North; New World Broadway; New World Levin; and New World Rangiora. Nationally, at the end of February, Foodstuffs cooperative members ran 45 PAK’nSAVE stores, 134 New World stores, 282 Four Square stores, 149 On the Spot convenience stores, 21 specialist liquor outlets, and 36 fuel sites. A further 72 specialist liquor stores were franchised to non-members

through Liquorland (NZ) Limited, which is jointly owned by the three Foodstuffs companies. Turning to the wholesale business, the companies continue to make substantial investments in the supply chain. Foodstuffs (Auckland) Ltd confirmed a decision to transition its Gilmours business to a wholesale franchise business and will complete this process in the current year. The Company completed the redevelopment of its controlled temperature distribution facility at Nesdale Road in Wiri which involved an extension to and refurbishment of the original premises. The total area of this facility is now approximately 15,000 sqm. The Company installed voice-directed picking in all its Distribution Centres and initiated a project to rollout new point-of-sale and back office systems in all retail formats. Foodstuffs (Wellington) Co-op Society Ltd completed its new Distribution Centre at Robert’s Line and officially opened the facility on 6th April. This new facility will become the sole point of distribution for ambient goods within the region by mid-2010, including Toops’ distribution services. The Company vacated two small warehouses in Kaimanawa Street and plans to vacate the main Kaimanawa Street warehouse and sub-let its Silverstream warehouse by the end of June 2010. In addition to these changes, the Company has plans to install automatic milk handling machines at its Grenada and Mihaere Drive temperature controlled distribution facilities which it will execute in the third quarter of 2010. Foodstuffs South Island Ltd completed the implementation of its SAP transport system, which now handles all freight transactions for inbound and outbound consignments. The system provides greater visibility over freight movements and expenses and is enabling the Company to manage its transport services more efficiently. SAP procurement has been well utilised to progress the Company’s VMI objectives, with 65 vendors now live accounting for 65% of all


National Progress Report (continued) purchase order volumes. The VMI programme has been responsible for the reduction of inventory costs within the business by way of reduced days cover and improved stock turns. The Company also reports a general improvement in service levels following a vendor going live with VMI due to the absolute clarity of information pertaining to that vendor’s products within the DCs especially around promotional activity and forecast. To improve the efficiency of the repack picking system, the Company introduced a repack rounding tool in its Warehouse Management System. This has reduced repack volumes by 25% and enabled members to maximise their bulk rebates. Following successful pilots, the Company is continuing with its rollout of SAP to retail stores. Self-checkout has been embraced by members and customers alike and all three companies are continuing to roll out the technology in retail stores. In November, all suppliers moved to the national CHEP levy for Foodstuffs distribution centres. This transfer system has been in place in the South Island for some years and brings the North Island companies into alignment. Foodstuffs Inbound (FIN) continues to steadily grow. The Foodstuffs transport companies are now providing primary freight services for a core group of suppliers and are in negotiations with many more, providing a sound platform for further growth. The companies continue to make good progress increasing the penetration of supplier transactions processed electronically via the Foodstuffs eXchange. More than 80% of warehouse orders and 60% of supplier invoices are now processed this way. The GS1net project continues to gain momentum and steps taken by the companies to align and streamline their supplier engagement processes will speed up its roll-out in the current year. Following last year’s decision to adopt unit pricing, the companies established work-streams and an intercompany project team to oversee

the project from a national perspective. All three companies are making good progress with their implementation plans and are on track for implementation by mid-2010. Acting on commitments to support government initiatives around obesity, New World became the retail partner in Eat Wise & Exercise, a consumer marketing campaign to encourage New Zealanders to make healthier nutrition choices. The companies fulfilled their promise to have 25% of checkouts confectionery-free, and also increased bike parking at stores. Nationally, two third of stores now provide bike racks. The Food for Thought Programme, sponsored by Pams and stores, continues to deliver nutritional education resources to primary schools. Since its launch in 2007, the programme has been used in 281 schools reaching 27,491 students. Efforts to reduce plastic bag use continue. However, the unexpected and strong response from customers to the bag charge, introduced in New World and Four Square stores nationally and PAK’nSAVE South Island in August, resulted in the charge being withdrawn for the New World and Four Square brands. Despite this, the companies made further gains in reducing their use of bags. Bag use for the last 12 months was 40 % lower than five years ago when bag reduction initiatives began. Foodstuffs (NZ) Limited, as the Federation Headquarters of the Foodstuffs Group of Companies, continued its role of co-ordinating the national activities of the Group where appropriate. The organisation continues to be involved with administrative and secretarial activities for the wider group, including the production of calendars and the organisation of national meetings and conferences, and plays an important advocacy role representing the wider group to industry and to government. During the year, Foodstuffs (NZ) Ltd represented the Foodstuffs organisation on the Boards of GS1 (NZ) Ltd, Retail Meat (NZ) Inc, Retail Meat Industry Training Organisation Inc, Retail Institute, the Packaging Council of NZ, and NARGON. The

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Foodstus South Island Limited Annual Report 2010

... making shopping easy

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National Progress Report (continued) Company manages relationships with other industry associations, including Business New Zealand and the New Zealand Retailers’ Association. The Company made a number of submissions to government agencies and parliament on policy and legislation of interest to the business. Written and oral submissions were made to Select Committees in relation to the RMA Amendment Bill, and the Sale and Supply of Liquor and Liquor Enforcement Bill. Among the submissions made to government on a wide range of issues covering the gamut of food regulation, transport regulation, and employment law, was a submission to the Ministry of Economic Development in response to its discussion paper on the Statutory Framework for Financial Reporting in which we opposed its proposal for mandatory reporting by large private businesses. The Minister’s announcement, in February, that the government will not proceed with this proposal is a very good outcome for members. Foodstuffs (NZ) Ltd also made a substantial submission to the Law Commission in response to its issues paper “Alcohol in Our Lives” and will continue to monitor policy developments arising from the review, and make appropriate representations to government. The national company, Foodstuffs Own Brands Ltd (FOBL), is responsible for the development and management of private label products, as well as managing national procurement and supplier relations. During the year, the Company commenced planning for a new consumer marketing programme for Pams and launched its “Pick Me” label to assist consumers in identifying healthier choices. FOBL, together with the national trans-Tasman joint venture, Metfood Pty Ltd, continue to achieve significant savings in procurement costs for the Foodstuffs companies through their tendering programmes.

As Chairman of Directors, I would like to express my appreciation to my fellow directors and to the executives and staff of the respective Foodstuffs companies for the commitment and enthusiasm they show in ensuring the ongoing progress, development, and success of the Foodstuffs organisation. I would like to make a special tribute to Tony McNeil who stood down from the role of Managing Director of Foodstuffs (Wellington) Co-op Society Ltd in March. Tony made a huge contribution, within the Wellington region and to the national Foodstuffs organisation, and we are heavily indebted for his legacy. We wish Tony and his family the very best in their future adventures. I extend a warm welcome to Craig Wilson who has come into the Managing Director’s role at the Wellington Company. I would also like to thank all the retail members of the Foodstuffs group nationally for the support they have shown to their own Foodstuffs Company and to the national organisation. The Foodstuffs companies continue to face challenges at wholesale and retail levels, but the organisation has shown great resilience in the face of these challenges, drawing on the considerable strength and fortitude that has been built up over many years. The close co-operation which exists between the three Foodstuffs companies is a major strength of the organisation and we are confident that the organisation will continue to build on this solid base and make further progress in the year ahead.

Robin Brown Chairman

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Executive Team PAK’nSAVE Executive Committee Marcel Gray Stephen Boock Bryan Dobson Chris & William McDonald Andrew Howard John Lee Steven McDonald Brad Spence Jason Williams

PAK’nSAVE Wainoni [Chairman] PAK’nSAVE Northlands PAK’nSAVE Invercargill

Chris Griffin Phil Blackburn Nigel Bond

PAK’nSAVE Dunedin

Kathy Frampton

PAK’nSAVE Richmond PAK’nSAVE Hornby PAK’nSAVE Riccarton PAK’nSAVE Moorhouse PAK’nSAVE Timaru

Warren McKenzie Bruce Miller

Four Square Executive Committee Peter Gillaly Lynette Eddington Rick Haaima Cushla Jones John McDonald Graeme Neilson John Niles Ian Steele

New World Executive Committee

Four Square Tarbert Street [Chairman]

Tony Sheppard

New World Gore [Chairman] New World Balclutha New World South City New World Westport (commenced Feb10)

New World Windsor New World Motueka New World Ashburton (retired Feb 10)

Henry’s BWS Executive Committee Carl Wild [Chairman] & Keith Miles

Four Square Top Notch Four Square Palmerston Four Square Fern Grove Four Square Pleasant Point Four Square Ascot Four Square Owaka Four Square Hanmer Springs

Henry’s City Henry’s Rolleston Henry’s New Brighton Henry’s Rangiora Henry’s Hornby Henry’s Woolston Henry’s Bishopdale Henry’s Tower Junction Henry’s Ferrymead Henry’s Shirley

Craig Smith & Henry’s Kaikoura Tracy Catanach Gerry Breen Henry’s Queenstown Marty & Raewyn Hay Henry’s Centre City Henry’s Foodlands Brad Spence Henry’s Moorhouse Howard Smith Henry’s Timaru Kevin Ryan Henry’s Alexandra

Foodstuffs South Island Limited Annual Report 2010

Corporate Executives

20

Steve Anderson Yvonne Botha Christopher Knowles Alan Malcolmson Roger Davidson Kim DeGarnham Philip Lemon John Mullins Malcolm Wratt Philip Wright

Chief Executive Officer Executive Assistant Company Secretary General Manager Retail Operations General Manager Property & Retail Development General Manager Administration & Members Services General Manager Trents Wholesale Limited General Manager Wholesale Operations & Procurement General Manager Finance General Manager Information Technology

Senior Executive Finance Simon Hughes Murray Trim Andrew Wight

Group Finance Manager Head of Decision Support Internal Audit Manager


Executive Team (continued) Administration & Members Services Ron Bitschkat Employee Services Manager Chris Dorward Manager Membership Services Information Technology Chris Cameron Ana Connor Gary Cowens Gordon McCoy Philip Smith

Online Media Manager eCommerce Manager Operations Service Manager Business Systems Manager Project Delivery Manager

Retail Operations Retail Brands Tim Donaldson Alan Smith Kent Mahon David Wise Danny Halligan Annie Hay David MacKenzie

Retail Brands Manager Four Square Group Manager New World Group Manager PAK’nSAVE Group Manager Henry’s BWS Group Manager Retail Merchandise Manager – Fresh Retail Merchandise Manager – Packaged

Support Services Stephanie Feldbrugge Nick Dawson Mark Hamilton David Norton

Support Services Manager Group Communications Manager Training & Development Manager Loss Prevention Manager

Murdoch Manufacturing Paul Johnston

General Manager

Wholesale Operations & Procurement Kris Lancaster Logistics Operations Manager Patrick O’Leary Article Master Manager David Pawson Wholesale Merchandise Manager Distribution Centres Scott Fairweather Bill Robertson Gareth Weatherston Tony Ziolo

Manager, Hornby, Christchurch Administration/Procurement Manager, Dunedin Manager, Dunedin Manager, Papanui, Christchurch

Trents Cash’nCarry Phil Olsen Anthony Haslam Allan McKenzie Paul Stanton John Warren Grant Watt Paul Witty

Operations Manager, Christchurch Manager, Greymouth Manager, Tuam Street, Christchurch Manager, Blenheim Manager, Invercargill Manager, Timaru Manager, Nelson

Property & Retail Development Rebecca Parish Property Development Manager Clayton Young Property Manager Trents Wholesale Michael Arlidge Alan Wicks

Foodservice Sales Manager Promotions and Merchandise Manager

21


Auditors’ Report To the shareholders of Foodstuffs South Island Limited We have audited the summary financial statements of the Group for the year ended 28 February 2010 on pages 24 to 27. This report is made solely to the Company’s shareholders, as a body, in accordance with Section 205 (1) of the Companies Act 1993. Our audit has been undertaken so that we might state to the Company’s shareholders those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinion we have formed. Directors’ Responsibilities The Group’s Directors are responsible for the preparation and presentation of the summary financial statements in accordance with generally accepted accounting practice in New Zealand. Auditors’ Responsibilities We are responsible for expressing an independent opinion on the summary financial statements presented by the Directors and reporting our opinion to you.

Foodstuffs South Island Limited Annual Report 2010

Basis of Opinion Our audit was conducted in accordance with New Zealand Auditing Standards and involved carrying out procedures to ensure the summary financial statements are consistent with the full financial statements on which the summary financial statements are based. We also evaluated the overall adequacy of the presentation of information in the summary financial statements against the requirements of Financial Reporting Standard 43: Summary Financial Statements. We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacities as auditors, taxation advisors, consulting advisors and providers of other assurance related services.

22

Unqualified Opinion In our opinion: (a) the amounts set out in the summary financial statements have been correctly extracted from the full financial statements of the Group and are consistent in all material respects with the full financial statements, upon which we expressed an unqualified audit opinion in our report to the shareholders dated 20 April 2010; and (b) the information reported in the summary financial statements complies with Financial Reporting Standard 43: Summary Financial Statements. We completed our work for the purposes of this report on 20 April 2010 and our unqualified opinion is expressed as at that date.

Chartered Accountants

Christchurch


... measuring and celebrating success

Foodstus South Island Limited Group

Financial Statements Income Statements ............................................................. 24 Statements of Comprehensive Income .............................. 25 Statements of Changes in Shareholders’ Equity ................ 25 Balance Sheets ................................................................... 26 Consolidated Statement of Cash Flows ............................. 27

23


FINANCIAL STATEMENTS

Income Statements for the year ended 28 February 2010 GROUP

Operating revenue Other income Total revenue and other income Operating profit Net finance costs Rebates to members Share of profit/(loss) from associates Profit/(Loss) before income tax Income tax expense Net Profit/(Loss) for the year

PARENT

2010

2009

2010

2009

$000

$000

$000

$000

2,278,386

2,189,493

2,080,446

75,830

75,038

50,190

2,003,497 41,766

2,354,216

2,264,531

2,130,636

2,045,263

202,989

174,035

175,982

140,134

9,179

14,114

2,682

(5,363)

177,575

149,088

177,575

149,088

( 35)

-

-

-

16,200

10,833

(4,275)

(3,591)

4,100

9,845

(4,523)

4,948

12,100

988

248

(8,539)

12,100

988

248

( 8,539)

Attributable to: Shareholders of the parent company

Foodstus (South Companies

Island)

Limited

and

Subsidiary

Annual Report 2010

Of the $12,100,000 profit attributable to Shareholders of the parent company, distributions of $11,911,000 are disclosed in the Statement of Changes to Shareholder’s Equity.

24


FINANCIAL STATEMENTS

Statements of Comprehensive Income for the year ended 28 February 2010 GROUP

Net Profit/(Loss) for the year

PARENT

2010

2009

2010

$000

$000

$000

2009 $000

12,100

988

248

( 8,539)

-

4,077

-

( 3,813)

Other comprehensive income: Share of retained surplus in associate previously not recognised Movement in other reserves

202

( 686)

38

Movement in available for sale reserve

5,252

( 27,619)

-

-

17,554

( 23,240)

286

( 12,352)

17,554

( 23,240)

286

( 12,352)

Total comprehensive income for the year Attributable to: Shareholders of the parent company

Statements of Changes in Shareholders’ Equity for the year ended 28 February 2010 GROUP

At 1 March 2009 Total comprehensive income

PARENT

2010

2009

2010

2009

$000

$000

$000

$000

180,672

177,894

23,766

10,100 ( 12,352)

17,554

( 23,240)

286

Dividend on retained patronage shares

( 11,911)

( 991)

( 11,911)

( 991)

Total recognised income and expenses

5,643

( 24,231)

( 11,625)

( 13,343)

Share issue At 28 February 2010

16,875

27,009

16,875

27,009

203,190

180,672

29,016

23,766

Basis of preparation These summary financial statements on pages 24 to 27, comprising the Income Statements, Statements of Comprehensive Income, Statements of Changes in Shareholders Equity, Balance Sheets, and Consolidated Statement Cash flows are those of Foodstuffs South Island Limited (the “Parent”) and its subsidiaries (the “Group”). They have been prepared in accordance with Financial Reporting Standard No. 43 “Summary Financial Statements” and have been extracted from full financial statements that have been prepared in accordance with New Zealand Standards that comply with International financial reporting Standards. The full financial statements for the year ended 28 February 2010, authorised for issue and signed on 20 April 2010 have been audited by PricewaterhouseCoopers and given an unqualified opinion. The Group is a profit-oriented entity. For a complete understanding of the financial affairs of the Group, the full financial statements are available to qualifying members on request.

25


FINANCIAL STATEMENTS

Balance Sheets for the year ended 28 February 2010 GROUP

PARENT

2010

2009

2010

2009

$000

$000

$000

$000

ASSETS Non-current assets Property, plant and equipment

429,759

422,185

25,555

18,660

14,058

18,108

13,616

-

-

277,589

265,991

4,895

4,890

803

810

Investments in listed companies

38,906

33,654

-

-

Investments in other related companies

10,385

8,304

10,385

8,304

502,605

483,091

332,440

322,741

Intangible assets Investments in subsidiaries Investments in associates

34,020

Investments held at fair value:

Total non-current assets Current assets Cash and cash equivalents

( 7,356)

1,811

( 7,356)

1,811

Trade and other receivables

176,487

180,863

162,385

166,975

80,733

85,692

77,438

83,000

489

-

6,254

1,016

Total current assets

250,353

268,366

238,721

252,802

TOTAL ASSETS

752,958

751,457

571,161

575,543

27,009

Inventories Current income tax receivable

EQUITY Capital and reserves attributable to equity holders Share capital Other reserves Retained earnings TOTAL EQUITY

43,884

27,009

43,884

136,847

131,394

1,515

1,477

22,459

22,269

( 16,383)

( 4,720)

203,190

180,672

29,016

23,766

Liabilities Non-current liabilities

Foodstus (South Companies

Island)

Limited

and

Subsidiary

Annual Report 2010

Borrowings

26

112,895

166,254

112,895

166,254

Retirement benefit obligations

1,902

3,215

1,902

3,215

Deferred income tax liability

6,991

7,051

2,876

2,161

Total non-current liabilities

121,788

176,520

117,673

171,630

Trade and other payables

192,548

173,496

189,082

161,855

Borrowings

174,182

180,459

174,182

180,465

60,522

37,427

60,480

37,099

-

2,155

-

-

728

728

728

728

Total current liabilities

427,980

394,265

424,472

380,147

TOTAL LIABILITIES

549,768

570,785

542,145

551,777

TOTAL EQUITY AND LIABILITIES

752,958

751,457

571,161

575,543

Current liabilities

Rebates payable Current income tax payable Provisions

On behalf of the Board 20 April 2010

Robin Brown, Director

Stephen Boock, Director


FINANCIAL STATEMENTS

Consolidated Statement of Cash Flows for the year ended 28 February 2010 GROUP

PARENT

2010

2009

2010

2009

$000

$000

$000

$000

Cash flows from operating activities Cash was provided from: Customers Interest received

2,356,076

2,226,707

2,116,978

2,015,051 22,137

1,725

1,955

1,728

( 4,831)

24,908

( 4,837)

24,587

2,352,970

2,253,570

2,113,869

2,061,775

2,119,102

2,054,041

1,924,401

1,888,413

154,468

157,595

154,182

157,595

Interest paid

8,410

11,152

1,546

11,876

Income tax paid

6,490

4,700

-

4,200

2,288,470

2,227,488

2,080,129

2,062,084

64,500

26,082

33,740

( 309)

Advances from other companies

2,518

1,278

1,521

9,554

Dividends

3,761

2,727

11,069

564

742

2,010

598

476

7,021

6,015

13,188

10,594

4,142

1,177

3,628

1,040

30,819

34,242

6,097

12,590

Member trading accounts

Cash was applied to: Purchases, wages and expenses Members rebates

Net cash flow from operating activities Cash flows from investing activities Cash was provided from:

Sale of property plant and equipment

Cash was applied to: Purchase of intangibles Purchase of property plant and equipment Advances to related parties Net cash flow from investing activities

4,977

751

5,620

722

39,938

36,170

15,345

14,352

( 32,917)

( 30,155)

( 2,157)

( 3,758)

Cash flows from financing activities Cash was provided from: Share capital raised

16,875

27,009

16,875

27,009

16,875

27,009

16,875

27,009

Interest paid on Redeemable Preference Shares

2,577

3,276

2,577

7,723

Interest paid on Retained Patronage Shares

1,689

4,447

1,689

-

53,359

17,319

53,359

17,319

Cash was applied to:

Long term borrowings

57,625

25,042

57,625

25,042

Net cash flow from financing activities

( 40,750)

1,967

( 40,750)

1,967

Net (decrease)/increase in cash held

( 9,167)

( 2,106)

( 9,167)

( 2,100)

1,811

3,889

1,811

3,883

-

28

-

28

( 7,356)

1,811

( 7,356)

1,811

( 8,823)

511

( 8,823)

511

1,455

1,288

1,455

1,288

Opening cash brought forward Exchange gain on overseas currency conversion Ending Cash carried forward Represented by: Bank Overseas currency accounts Cash on hand

12

12

12

12

( 7,356)

1,811

( 7,356)

1,811

27


The Network Henry’s BWS

Total

PAK’nSAVE

Total

Christchurch

10

Christchurch

5

Rangiora

1

Dunedin

1

Kaikoura

1

Timaru

1

Alexandra

1

Nelson

1

Dunedin

2

Invercargill

1

Timaru

1

Queenstown

1

9

17 Four Square New World

Foodstuffs South Island Limited Annual Report 2010

7

Blenheim

5

2

West Coast

5

Motueka

1

Canterbury

12

Blenheim

1

Ashburton

4

Kaikoura

1

Timaru

4

Greymouth

1

Central Otago

20

Westport

1

Dunedin

8

Hokitika

1

Southland

13

Rangiora

1

Stewart Island

Kaiapoi

1

Christchurch

8

Lincoln

1

Rolleston

1

On the Spot

Ashburton

1

Nelson

22

Temuka

1

Blenheim

5

Timaru

1

Kaikoura

2

Waimate

1

West Coast

18

Wanaka

1

Canterbury

31

Cromwell

1

Ashburton

5

Alexandra

1

Timaru

8

Wakatipu

1

Dunedin

27

Oamaru

2

Central Otago

7

Dunedin

3

Invercargill

21

Port Chalmers

1

Mosgiel

1

Balclutha

1

Nelson

28

Nelson

Gore

1

Invercargill

2

Winton

1 40

1 79

146


... appreciating the good things in life Jean-Pierre Derveaux and Jo Seagar with the winning “Ultimate Carrot Cake�


report 2010 annual

167 Main North Road, Christchurch 8041, NZ Tel: +64 (03) 353 8700


2010 Annual Summary Report of Foodstuffs South Island Limited