FRESH: STRATEGY, STRUCTURE, IDEASFoodstuffs (Wellington) Co-operative Society Ltd

2011 ANNUAL REPORT

FRESH: FUTURE

Registered Office – Kiln Street, Silverstream, Upper Hutt

Principal Operating Subsidiaries – AF Logistics Limited, Toops Wholesale Limited and

Foodstuffs Properties (Wellington) Limited

Solicitor – Gillespie Young Watson

Auditor – Ernst & Young

Bankers – ANZ National Bank Limited, Bank of New Zealand, Commonwealth Bank of Australia,

Kiwibank, Rabobank, Westpac Banking Corporation

CONTENTSBOARD OF DIRECTORS 1

ABOUT US 3

CHAIRmAN’S REvIEW 5

Financial Performance 5

Distribution to Members 6

Financial Position 7

Review of Society’s Activities 7

Summary and Appreciation 10

RETAIL SERvICES REvIEW 11

Banner Groups 11

Retail Systems 13

Supply Chain 13

Training and Development 13

Committees 14

NATIONAL PROGRESS REPORT 15

FINANCIAL SUmmARY 21

SUmmARY FINANCIAL STATEmENTS 23

Statements of Comprehensive Income 23

Statements of Changes in Members’ Funds 24

Balance Sheets 25

Cash Flow Statements 27

Notes to the Summary Financial Statements 29

BOARD OF DIRECTORS

CRAIG WILSONManaging Director

DAvID SmIthPAK’nSAVE Hastings

KIeRAN O’SULLIvANVice Chairman, PAK’nSAVE Hutt City

DAvID KeRShAWFour Square Martinborough

BRIAN DRAKeChairman, New World Thorndon

BRIAN GALtPAK’nSAVE Kilbirnie

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DANIeL ROBeRtSONChief Financial Officer

LeO O’SULLIvANPAK’nSAVE Petone

JOe veGARNew World Miramar

PeteR ANDeRSONPAK’nSAVE Kapiti

BRUCe BeAtONNew World Greenmeadows

GRANt RANSOmSecretary

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Foodstuffs (Wellington) Co-operative Society Limited is a 100% wholly owned New Zealand co-operative, a direct descendent of United Buyers Limited which was first registered in Wellington in 1929.

The Society was formed to provide independent retailers the services and organisational platform to purchase and sell merchandise profitably. The primary business activities are the wholesaling and distribution of food and general products and the development and operation of supermarkets (through owner/operator members) under the PAK’nSAVE, New World and Four Square banners. Major wholly owned subsidiaries include a logistics arm, AF Logistics Limited and a cash and carry wholesaler, Toops Wholesale Limited.

The Society services a population of around one million consumers throughout the lower half of the North Island, from Taranaki across to Hawkes Bay and down to Wellington.

The Society operates two distribution centres in Palmerston North located at Roberts Line for dry goods and Mihaere Drive for chilled and frozen goods.

The governance Board currently consists of ten directors, all of whom are supermarket owner operators and members of the Society, with the exception of the Managing Director. Foodstuffs Wellington is managed through six business divisions, each with a General Manager reporting to the Managing Director.

Foodstuffs Wellington has two sister co-operatives Foodstuffs Auckland Limited and Foodstuffs South Island Limited. The three co-operatives are independent of each other and have their own boards and executive structures. The three co-operatives jointly own Foodstuffs (N.Z.) Limited, a small non-trading entity, which represents the collective interests of the co-operatives to the Government and to the public at a national level.

ABOUT US

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On behalf of your Board of Directors of Foodstuffs Wellington it gives me pleasure to present the 82nd Annual Report to members for the year ended 31 March 2011.

FINANCIAL PERFORmANCEGroup sales (including subsidiary companies) were $2,271m, an increase of 1.7% compared with the previous financial year. Sales transacted by the Society with members also increased by 1.7% to $1,931m. With a period of price deflation at the beginning of the financial year, and operating in a market where consumers have shopped around, this represents a very respectable sales performance.

The surplus generated before distribution to members and taxation was $51.1m, a decrease of $13.7m on the previous year’s surplus. Three themes explain the majority of the year-on-year drop in profit:

- Roberts Line transition costs - $5m. It has taken us longer and required more resource than anticipated to stabilise the new distribution centre. The challenges of consolidating ambient product warehousing and distribution in the one location and then commissioning a sophisticated new automated split case picking machine and migrating Toops full-service activity were underestimated. The operation has now been stabilised and operating costs are steadily realigning towards original business case levels.

- Increase in financing costs - $3m. The increase in finance expenses was anticipated as a number of bank facilities were rolled over early in the

year in a radically changed financial environment following the global financial crisis.

- Reduction in dividend income - $3.6m. The reduction was due to the timing of interim dividend payments by The Warehouse Group, which the Society holds a strategic shareholding in. Due to the 2010 interim dividend being paid earlier than normal, two interim dividends were recorded in the 2010 financial year, and none in the 2011 financial year.

Operating expenses include $15.7m of one-off non-cash impairment charges. In accordance with International Financial Reporting Standards (IFRS) we have reviewed our property portfolio, and in a number of cases determined that it was prudent to reflect current commercial reality in the values of land bank properties. The decision was made to discontinue several information technology projects, in particular Manhattan (the replacement of the AF Logistics transport management system), and Phoenix II (the replacement of the store cashbook system). The decisions to discontinue these projects were not made lightly, however it was determined that continuing these projects would not have been the best use of financial and human resources.

The impairment costs are largely offset by $15.6m of gains on sale of assets. The most notable amongst these were gains from the sale of the ground lease on Thorndon New World, the sale of the Toops milk business to Fonterra Brands, and the finalisation of the gain on sale of the Roberts Line warehouse sale and leaseback transaction.

CHAIRmAN’S REvIEW

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Group operating cash flow remained strong, with the reduction of inventory holdings to pre-Roberts Line transition levels freeing up significant working capital.

The Society remains well positioned to fund future store developments and investment in technology, and to provide essential financial support to members.

DISTRIBUTION TO mEmBERSAnnual rebates have been distributed in excess of annual earnings for the past five years following the Kapiti Fine Foods sale in 2006. The resumption of positive retention of earnings has been achieved this year, albeit on a before tax basis. It is unfortunate that this has not allowed for the payment of an end of year loyalty rebate however it was critical that the Society returns to a situation of sustainable retention of earnings.

The proposed total rebate allocation to members from this year’s trading is $50.7m, or $0.4m less than profit before income tax. The proposed rebate represents trading rebates only, and no five-year deferred or terminal cash rebates.

Trading rebates include the 10% withheld to fund revocable share deposit balances. Where the two weeks of average purchases holding threshold has been achieved by individual members, the excess will be refunded as in past years. Trading rebates also include the meat incentive rebate, which is paid annually.

While it is recognised that the lack of a loyalty cash rebate in particular will negatively affect member cash flows, due to the maturing of the 2006 Kapiti Fine Foods deferred rebate, a majority of members will be receiving more cash than in the previous financial year.

Members have also earned interest on deferred rebates totalling $3.8m. The slight reduction on 2010 ($3.9m) is due to the drop in the applicable interest rate from 5.0% to 4.0%, This reflects changes in the financial markets, while also maintaining relativity to borrowing costs the Society achieves from its external debt funders. The new interest rate had effect from 1 August 2010.

During the year the proportion of warehouse sales to members conducted on a rebateable basis decreased slightly on 2010; this was due to a slight increase in the share of charge-through sales over prior years. Consequently 2011 trading rebates reduced $0.7m from 2010 levels.

Your Directors will be seeking confirmation from the Annual General Meeting that rebates be distributed as follows:

1. Rebates paid monthly and quarterly calculated at 12.5% on bulk rebateable purchases; 5% on re-pack rebateable purchases and frozen purchases; 2% on liquor, confectionery, controlled label and cigarette & tobacco purchases (excluding B.A.T. products). Milk, meat brokering, cabinet ready meat and Bell Tea purchases at qualifying criteria.

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2. The above rebates will be paid in cash, subject to members completing their obligations with the Society in respect to revocable share deposit qualification, overdue and loan accounts.

3. Share deposit obligations of members to be met by issuing revocable share deposits calculated by crediting to each member’s account up to 10% of each members’ rebate entitlement paid monthly and quarterly.

4. Revocable share deposits are issued subject to the Society’s rules.

FINANCIAL POSITIONThe Society remains in a strong financial position, with total group assets of $715m. Although this is less than 2010, this was due to the reduction in inventories and short-term bank investments. Excluding these movements, underlying assets grew by $15m.

A positive contribution to retained earnings before taxes of $0.4m has been achieved, this is the first time since 2006. Members’ funds, as measured under IFRS, have however reduced by $45.2m to $103.8m. The primary reason for the reduction was non-cash charges for deferred tax ($39.4m), and negative revaluation of interest rate swaps ($5.2m).

As outlined in last year’s annual report, the removal of tax deductibility of depreciation on long-life buildings from 1 April 2011 must be accounted for as a charge equal to the value of the lost future tax deductions. This is regarded as an accounting adjustment, and not a true reflection of a reduction in the equity of the business.

The change in value of interest rate swaps is also a non-cash item. It reflects the fact that interest rates in the financial markets have dropped to below the levels we locked in for 10 years on a substantial component of our core debt, in early 2009. The cost we see in our accounts effectively values the difference to market rates for the entire remaining term of the swaps (ie, approximately eight years), assuming that interest rates stay where they currently are. We remain happy with the very low rates we have locked in, while also continuing to benefit from current low interest rates on the borrowings we have that were not hedged.

The Society has committed bank loan facilities at balance date of $270m, of which $211m were utilised. Financial ratios continue to be well within the terms of the unsecured negative pledge agreement into which the Society has entered with its principal lenders.

Contingent liabilities, including guarantees of members’ bank facilities, grew by $9.8m to $129.9m.

REvIEW OF SOCIETY’S ACTIvITIESThe Society has enjoyed a busy year developing and modernising our retail stores. Two modern New World stores were built at Marton and Waipukurau. Major upgrades were completed at Palmerston North PAK’nSAVE, Kapiti PAK’nSAVE, Levin New World and Broadway New World.

Construction has commenced on brand new stores for New World at Churton Park and Newlands while planning continues for new offers at Rugby Street, Silverstream, Tawa and Kapiti.

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Our ability to maintain and grow a strong retail footprint, ahead of our competition, underpins our dominant position in the supermarket industry in the lower North Island.

Distribution CentresAfter being officially opened in April 2010, the distribution centre located at Roberts Line in Palmerston North is now handling all members, as well as Toops upper North Island oil channel ambient product distribution. After an initial settling in period the new automated split case picking system has delivered the planned operational efficiencies and staff savings. Work is ongoing to progressively lower whole-of-facility operating costs to business case levels. The Kaimanawa Street warehouse has been sold and options are being explored for the utilisation of the now empty warehouse located at Silverstream.

The Society installed automatic milk handling machines at the Grenada and Mihaere Drive distribution facilities in the third quarter of 2010 and the first quarter of 2011 respectively. The machines have led to lower levels of workplace injuries, which is important given we are now part of the ACC Partnership Plus Programme, and are responsible for the rehabilitation and medical costs of employees requiring treatment following workplace injuries.

Supply ChainAF Logistics had another good year in an industry that has seen a number of operators go out of business due to the tough market conditions. Several small acquisitions served to fill geographic gaps as well as increase market penetration and offer further opportunities to improve vehicle utilisation.

The supplier primary freight initiative continues to grow rapidly, with well over 100 suppliers now part of the programme. Toops continue to refine their offer and operating model following changes to servicing with the commissioning of the Roberts Line facility. The distribution of upper North Island oil channel ambient orders out of Roberts Line has enabled Toops to significantly reduce branch costs.

Support Centre Operating modelAfter a review of the structure, performance and operating costs of the central organisation a number of changes were implemented early in 2011. A new structure has been implemented to support the delivery of our strategic objectives, to provide a platform for growth and to better serve the needs of our members and ultimately our customers. Following an intensive consultation process optimal structures were developed and implemented across the group. This resulted in a significant reduction in staffing numbers while also taking the opportunity to address capability gaps in a number of areas.

This has been the biggest organisational change process undertaken in a number of years. It has been a difficult time for all, however it was a necessary step to maintain and improve our profitability and strength in a challenging economic and competitive environment. It is important that we continue to develop and refine the central support team over time.

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SUmmARY AND APPRECIATIONThe Society has successfully weathered a difficult year on a number of fronts. However we remain very well positioned with many new developments in progress. We are holding our strong market share and we are confident that there will be a significant improvement in 2011/12 as we gradually move out of the recession and into more buoyant times.

On behalf of the Board of Directors I would like to thank our executive and staff for their enthusiasm and support during the past year. It is largely due to their skills and dedication that our Society continues to make good progress through difficult and challenging times.

Finally I would like to thank our members who have unreservedly supported the Society, and in particular those who have served on advertising, ranging and training committees.

To my fellow Directors thank you for your valuable contribution throughout the year.

Brian Drake Chairman Board of Directors

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BANNER GROUPS

New World’s market share performed strongly on the back of its superior range and value for money customer offer throughout the year. The goal of providing customers with superior fresh products will continue to be an important component of the brand’s success going forward. The year also brought a number of very successful national marketing campaigns as a consequence of appointing a single marketing agency. The iconic Cleverbaskets advertising proved a very effective tool to drive awareness and revenue for New World stores.

New World was ranked as New Zealand’s best supermarket in terms of customer service in a Colmar Brunton poll reported on TVNZ’s Fair Go programme.

Two new stores were opened during the year at Waipukurau and Marton, and both are trading well. In addition to the new stores a modernisation of the external appearance and internal decor was undertaken at Levin New World, including improved retail offers in produce, bakery, deli and grocery. Broadway New World, in Palmerston North, also underwent modernisation with upgrades to the interior, exterior and refrigeration and mechanical systems.

The PAK’nSAVE group has maintained its very strong reputation of delivering the lowest overall food prices. This was evidenced by retaining the Consumer magazine’s award for the lowest priced groceries in New Zealand for the 11th year in a row. PAK’nSAVE’s prices were 6-10% lower than that of the next cheapest supermarket in New Zealand.

This year saw greater interaction between the three Foodstuffs co-operatives by further developing the Stickman advertising icon and demonstrating nationally that PAK’nSAVE continues to offer lowest prices.

There were no PAK’nSAVE stores built during the year. However the Palmerston North PAK’nSAVE underwent extensive modernisation upgrading the store’s frontage, entrance and enhancements were made to the produce departments. Kapiti PAK’nSAVE was also renovated with an extension to the store frontage, a refresh of the interior including lighting and floor resurfacing.

During what was a difficult and competitive trading environment we are pleased to report that the Four Square group had a solid trading year achieving good sales growth.

RETAIL SERvICES REvIEW

Marton New World

Palmerston North PAK’nSAVE

Cloverlea Four Square

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Two new stores were opened during the year at Ahuriri in the Hawkes Bay and Foxton Beach in the Manawatu. The Cloverlea Four Square store, situated in Palmerston North, underwent major refurbishment with a new entrance, signage and scanning equipment with the store doubling in size. Patea Four Square was also extended and included an additional range of grocery and general merchandise, along with new refrigeration and cold shelf cabinet. The Kaponga Four Square, situated in the Taranaki region, also underwent modernisation with new refrigeration, freezer cases, cold shelf line-up and an increase in grocery bays. In addition to this several stores were re-painted with new signage to the national brand standards.

Four Square Charlie has achieved iconic status with the New Zealand public. He continues to enhance the reputation of the Four Square brand, providing a platform to experiment with and grow new categories as traditional categories lose their effectiveness.

RETAIL SYSTEmSThe Society’s automated stock replenishment system (“FastR”) is still progressing well and is now operational in more than 51 stores. This is lowering inventory and improving on shelf product availability; key strategies to improve our customer offer.

The implementation of self checkout lanes continues throughout the Society’s stores with around 164 lanes in over 27 stores. Approximately 20% of all New World and PAK’nSAVE checkout lanes are now self service and they process around 24% of total transactions across the two banner groups.

Shop’nGo customer self-scanning remains a key component of the customer service offer at all PAK’nSAVE stores and is seen as complementary to self checkout. A scanner hardware replacement programme is ongoing and will extend the life of the system for several more years. Integration of the Shop’nGo transaction payment process onto self checkouts was trialled and subsequently enabled at four stores.

The self checkout and Shop’nGo systems continue to find increasing acceptance with our customers as they seek to take more control of the checkout process.

SUPPLY CHAINAn automated milk pricing system was implemented at the distribution centres located at Grenada and Mihaere Drive. This has improved labour costs and effectively removed any form of injury being sustained by staff handling milk.

TRAINING AND DEvELOPmENTIt has been a busy year for training and development with new initiatives being developed that will assist in building a talent pool of highly skilled people within our Society.

A record number of students and support centre staff were involved in both traditional programmes and other new qualifications. For example 40 people have successfully attained the deli and seafood qualification which recognises the importance of fresh produce departments within our stores. There are currently over 100 bakery and butchery apprentices in training

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and several stores are participating in the ‘Great Place to Work Programme’. Over 80 people have undertaken modules of our Management Development Programme. Other key courses were held and covered topics such as stepping up to supervisor, buying and negotiating and first line management

COmmITTEESThe success of our retail stores relies on the respective committee members giving their valuable time and assistance working together on key initiatives. We would like to extend our grateful thanks to the following members:

New World Advertising Committee: Joe Vegar, Miramar New World (board representative); Gary Baker, Wellington City New World; Tony Clark, Havelock North New World; Rob Dowman, New Plymouth New World; John Gray, Merrilands New World; Neil Hogg, Fielding New World; Mark Kennedy, Otaki New World and Darrin Wong, Pioneer New World.

Price Impact Group Advertising Committee: Leo O’Sullivan, PAK’nSAVE Petone (board representative); Paul de Lara Bell, PAK’nSAVE Masterton; Dean Galt, PAK’nSAVE Kilbirnie; Peter Herrick, PAK’nSAVE Tamatea and Glen Taylor, PAK’nSAVE Kapiti.

Four Square Advertising Committee: David Kershaw, Martinborough Four Square (board representative); Guy Meech, Ahuriri Four Square; Grant Irwin, Moturoa Four Square; Vijay Patel, Awapuni Four Square and Kishor Patel, Totara Park Four Square.

Training Committee: Tim Carmichael, Island Bay New World; Sonya Hasselman, PAK’nSAVE Napier; Katie Yates, Carterton New World; Paul Vegar, Miramar New World and Denis Fenwick, Four Square Greytown.

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The year ended February 2011 proved to be a challenging one for the organisation with the New Zealand economy recovering much more slowly than anticipated from the economic recession and international factors driving high commodity prices which in turn has fuelled food price inflation and an increase in operating costs in an otherwise flat market. The two Canterbury earthquakes provided additional challenges for our South Island Company.

The combined wholesale turnover for the three Foodstuffs companies was $8.07 billion, up $89 million or 1.12% on the 2010 result reflecting the stagnant retail market conditions. Total distributions to members were $342.79 million, an increase of $3.30 million over 2010.

During the year new New World stores were opened in Mt Roskill, Waipukurau, and Marton while major refurbishment projects were completed at New World Broadway, Levin New World, Wairoa New World, Rangiora New World, and Oamaru New World.

New PAK’nSAVE stores were opened in Papamoa and Te Awamutu, and store refurbishment projects completed at Mill Street PAK’nSAVE in Hamilton, Palmerston North PAK’nSAVE, and Kapiti PAK’nSAVE, Paraparaumu.

The companies continue to devote considerable energy to the regeneration of our Four Square heritage brand and this has translated to a busy store development programme for the group. New Four Square stores were opened in Papamoa, Ahuriri, and Foxton Beach while the store refurbishment programme included upgrades at Cloverlea Four Square, Patea Four Square,

Kaponga Four Square, Eltham Four Square, Waterloo Four Square, BJ’s Waitara

Four Square, and Lawrence Four Square.

A new Henry’s Beer, Wine, & Spirits was opened in Greymouth, and five

new fuel sites were opened – at Mt Albert PAK’nSAVE, Tauranga PAK’nSAVE,

Papamoa PAK’nSAVE, Te Awamutu PAK’nSAVE, and Marton New World.

New markets and extensions to existing markets provided an additional gross

retail floor area of 22,720 sq. m. Nationally, at the end of February, Foodstuffs

co-operative members operated 47 PAK’nSAVE stores, 132 New World stores

(excluding the 3 New World stores in Christchurch which are being rebuilt

after the Canterbury quakes), 278 Four Square stores, 148 On the Spot

convenience stores, 19 Henry’s Beer, Wine and Spirit outlets and 37 fuel sites.

The companies continue to make substantial investments in their wholesale

business infrastructure.

AUCkLANDIn the Auckland region, additional space was leased at the Wiri Foodstuffs

Fresh Distribution Centre, increasing the facility’s capacity from 4,500 to

6,500 pallets. Foodstuffs (Auckland) Ltd shifted its ambient primary freight

operations to this site.

The conversion of the Company’s Gilmours branches to owner-operated

businesses was completed and 8 member-owned Gilmours stores now

service the non-member trade business.

NATIONAL PROGRESS REPORT

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A major transformational project to increase business operational efficiency, called Project Lightning, was initiated to drive the adoption of more efficient business processes and enabling technologies across both the retail and wholesale business. The key focuses are making improvements in the effectiveness of buying operations, inventory management, and business analytics.

WELLINGTONFoodstuffs (Wellington) Co-operative Society Ltd officially opened its Robert’s Line Distribution Centre on the 6th April 2010. This new facility has consolidated goods warehousing and manufacturing facilities for the Company and includes equipment for automated split-case picking. Stackflow machines, for mechanical milk crate picking, were installed at the Company’s Grenada and Mihaere Drive (Palmerston North) distribution centres to improve picking efficiency at those sites. The Company’s Silverstream warehouse was officially closed on 31 March 2011.

In a major IT development, the Company deployed a new software application which analyses product sales to predict the optimal retail pricing for individual product lines.

SOUTH ISLANDIn February, Foodstuffs South Island Ltd announced the development of a new $45 million 25,000 sq. m. distribution centre to be built in Hornby, Christchurch, adjacent to the Company’s existing 13,000 sq.m. Hornby Distribution Centre. The plans include green energy and lighting systems, 11 metre high racking, and enhanced staff facilities. Construction commences

late in 2011 for completion in late 2012. Once complete the existing Papanui Distribution Centre will be closed and all Christchurch based distribution consolidated at the Hornby site. The Company’s corporate head-quarters will remain at the Papanui property.

The Company is continuing the roll out of the SAP information technology platform to its retail stores and has completed implementation at 13 stores while another 35 stores are part-way through their implementations.

The two Canterbury quakes lead to some disruption to the operations for the South Island Company, the temporary closure of most Christchurch stores and the Hornby ambient distribution centre and the longer-term closure of three New Worlds and a Four Square store. Operators, management, staff, and suppliers demonstrated huge resilience and fortitude under pressure and pulled together to resume near-normal services in a very short time.

After the first earthquake of 4 September, the Foodstuffs South Island Community Trust distributed close to $60,000 by way of grocery vouchers to some 140 staff of Foodstuffs and members who experienced hardship due to the earthquake. Following the more wide-spread devastation of the 22 February earthquake, sponsors and supporters rallied round with extra funding support and along with donations from Foodstuffs (NZ) Ltd and our Wellington and Auckland members, quake-relief funding contributions rose to more than $500,000. At the time of writing the Community Trust had assisted more than 400 individuals with financial assistance totalling just under $275,000. It is expecting an influx of earthquake related requests from community groups over the coming months.

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JOINT INITIATIvESThe companies’ joint primary freight initiative is progressing well. At year end FIN was providing primary freight services to 102 suppliers, an increase of 63 over the previous year.

In recent years the three companies have worked more closely together on national marketing initiatives and this continued in the year under review. During the year the New World group launched the “Different like You” brand campaign and “Cleverbaskets” to point customers to value buys. New World continued its association with the Silver Ferns International Netball series and ran another successful Eat Wise & Exercise promotion. National New World competitions included the highly successful Shop, Scratch, & Score competition and the “Great Car Give Away” in which every New World store gave away a Suzuki Swift car. National marketing collaboration will step up again in the 2011/2012 year with the appointment of a National Marketing General Manager.

The companies also work closely together on e-commerce initiatives and are making good progress increasing the penetration of supplier transactions processed electronically via the Foodstuffs eXchange. Around 86% of suppliers are now using the eXchange for one or more transaction type and 65% of supplier invoices are now transmitted via the portal. The GS1net project continues to gain momentum and steps taken by the companies to align and streamline their supplier engagement processes has seen the roll-out of GS1net speed up.

Other national projects included the adoption of unit pricing in retail

stores and the redevelopment of Foodstuffs’ national websites, both now completed. The website projects involved upgrading of the retail brand sites, suppliers’ website, the development of an e-recruitment tool and the development of a supplier relationship management tool.

Foodstuffs (NZ) Limited, as the Federation Headquarters of the Foodstuffs Group of Companies, continued its role of coordinating 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 the Federation body plays an important advocacy role representing Foodstuffs’ views nationally.

National submissions were made in response to: the Alcohol Reform Bill, the Smoke-free (Controls and Enforcement) Amendment Bill, the Food Bill, two Employment Relations Amendment Bills, and the Holiday’s Amendment Bill. Submissions were also prepared for: the Ministry of Consumer Affairs’ review of Consumer Law, the MED’s draft fuel rationing regulations, the COAG Review of Food Labelling Law and Policy, Medsafe’s review of the medical classification of cough and cold medicines, and the IRD’s consultation on depreciation for non-residential building. An application was made for bakers to be reinstated on Immigration NZ’s Essential Skills Shortage Lists which will be decided mid-2011.

Foodstuffs Own Brands Ltd (FOBL) continues to be responsible for the development and management of private label products, as well as managing national procurement and supplier relations.

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During the year the Company launched a new consumer marketing programme for Pams, and launched a “Pick Me” label to assist consumers in identifying healthier food choices. FOBL, together with the national trans-Tasman joint venture, Metfood Pty Ltd, continues to run a joint tendering programme and has achieved considerable savings in procurement costs for the Foodstuffs group of companies.

Foodstuffs’ Food for Thought Trust, sponsored by Pams, signed a Collaborative Agreement with the Heart Foundation which runs a school programme named Heart Start. Under the Collaborative Agreement the two organisations have agreed to promote each other’s programme as part of their dealings with schools. The venture has commenced with a pilot programme which will be reviewed in 2011. The Trust has employed a second Nutritionist based in Auckland to meet increased demand for the programme from schools in the wider Auckland region.

In conclusion, 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 special mention of Tony Carter who stood down from the dual roles of Managing Director of Foodstuffs (Auckland) Ltd and Foodstuffs (N.Z.) Ltd in late 2010 to pursue a career as a company director. Tony Carter’s contribution to the organisation over a 17-year period was enormous and we are very much indebted to him for his capable leadership over this time. We extend to Tony and his wife Frances our very best wishes for their future lives.

I would also like to thank all the retail members of the Foodstuffs group nationally for the support that they have shown both to their own Foodstuffs company and to the national organisation. The Foodstuffs companies continue to face challenges at both a wholesale and retail level, but the organisation has shown great resilience in the face of these challenges, drawing on the considerable strength that has built up over many years. The close cooperation which occurs between the three companies is a major strength of the organisation and we are confident that the organisation will continue to build on this foundation to make further progress in the year ahead.

Brian Drake Chairman

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FRESH: FINANCIALS

FINANCIAL SUmmARY

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2007

EARNINGS REBATES MEMBERS FUNDS

2008 2009 2010 2011

250

200

150

100

50

0

GROUP EARNINGS & DISTRIBUTIONS TO mEmBERS($million)

2007

SAlES To MEMBERS GRoUp SAlES opERATING REvENUE

2008 2009 2010 2011

3000

2500

2000

1500

1000

500

0

OPERATING REvENUE($million)

The results have been prepared in accordance with International Financial

Reporting Standards (IFRS). Movements in the value of shares held in The

Warehouse Group Limited, based on market prices at each balance date, are

recognised in reserves as part of Members’ funds. Earnings for 2011 include a

one-off deferred tax expense of $39.1 million arising from the removal of tax

deductibility of depreciation on long-life buildings from 1 April 2011.

FINANCIAL STATEMENTS

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SUmmARY FINANCIAL STATEmENTSSTATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2011

GROUP PARENT

NOTE 2011 ($000)

2010 ($000)

2011 ($000)

2010 ($000)

Revenue 2,270,945 2,233,416 1,931,211 1,897,965

Cost of sales (2,106,884) (2,072,502) (1,791,288) (1,765,448)

Gross profit 164,061 160,914 139,923 132,517

Other income 110,271 94,816 93,359 62,999

Less: Operating expenses (210,915) (180,891) (187,364) (139,245)

Operating Profit 63,417 74,839 45,918 56,271

Finance income 1,691 1,055 1,686 1,055

Less: Finance costs (15,908) (12,263) (15,777) (12,159)

Net finance expenses (14,217) (11,208) (14,091) (11,104)

Share of associates' profits/(losses) after tax 1,869 1,211 - -

Dividends from subsidiaries 6 - - - 90,000

Profit before distribution to members 51,069 64,842 31,827 135,167

Less: Distribution to Members (50,664) (69,800) (50,664) (69,800)

Profit/(loss) before income tax 405 (4,958) (18,837) 65,367

Less: Income tax (expense)/credit 2 (37,918) (1,846) 1,365 (2,278)

Profit/(loss) after tax for the year (37,513) (6,804) (17,472) 63,089

Other comprehensive income recognised directly in members' Funds:Net gain/(loss) on investments in equity instruments designated as at fair value through other comprehensive income (2,472) 1,749 - -

Net gain/(loss) on cash flow hedges (5,225) 250 (5,225) 250

Other comprehensive income (7,697) 1,999 (5,225) 250

Total comprehensive profit/(loss) for the year (45,210) (4,805) (22,697) 63,339

FOODSTUFFS (WELLINGTON) CO-OPERATIVE SOCIETY LIMITED & SUBSIDIARIES23

STATEMENTS OF CHANGES IN MEMbERS’ FUNdS FOR THE YEAR ENDED 31 MARCH 2011

GROUP

RETAINEd EARNINGS

($000)

INVESTMENTS REVALUATION RESERVE

($000)

INTEREST RATE SWAP RESERVE

($000)

TOTAL ($000)

31 march 2011Balance at the beginning of the year 159,723 (13,449) 2,686 148,960 Profit/(loss) after tax for the year (37,513) - - (37,513)Other comprehensive income - (2,472) (5,225) (7,697)Total comprehensive income for the year (37,513) (2,472) (5,225) (45,210)Balance at the end of the year 122,210 (15,921) (2,539) 103,750

31 march 2010Balance at the beginning of the year 166,527 (15,198) 2,436 153,765 Profit/(loss) after tax for the year (6,804) - - (6,804)Other comprehensive income - 1,749 250 1,999 Total comprehensive income for the year (6,804) 1,749 250 (4,805)Balance at the end of the year 159,723 (13,449) 2,686 148,960

PARENT

31 march 2011Balance at the beginning of the year 96,043 - 2,686 98,729 Profit/(loss) after tax for the year (17,472) - - (17,472)Other comprehensive income - - (5,225) (5,225)Total comprehensive income for the year (17,472) - (5,225) (22,697)Balance at the end of the year 78,571 - (2,539) 76,032

31 march 2010Balance at the beginning of the year 32,954 - 2,436 35,390 Profit/(loss) after tax for the year 63,089 - - 63,089 Other comprehensive income - - 250 250 Total comprehensive income for the year 63,089 - 250 63,339 Balance at the end of the year 96,043 - 2,686 98,729

FOODSTUFFS (WELLINGTON) CO-OPERATIVE SOCIETY LIMITED & SUBSIDIARIES 24

SUmmARY FINANCIAL STATEmENTS

bALANCE SHEETS AS AT 31 MARCH 2011

GROUP PARENT

NOTE 2011 ($000)

2010 ($000)

2011 ($000)

2010 ($000)

Current assets

Cash and cash equivalents 4,948 9,043 3,983 6,318

Trade and other receivables 118,394 125,594 86,092 98,984

Advances to Members 3 3,537 1,478 3,537 1,478

Inventories 87,302 106,413 77,621 91,916

Tax receivable 12 447 - 447

Other financial assets - 45,000 122,892 164,676

Total current assets 214,193 287,975 294,125 363,819

Non-current assets

Advances to Members 3 1,182 1,438 1,182 1,438

Property, plant and equipment 418,938 389,727 50,967 40,861

Intangible assets and goodwill 8,949 12,329 8,176 8,539

Deferred tax asset 5,915 4,821 2,790 1,973

Investments in subsidiaries - - 28,282 28,282

Investments in associates 6 21,566 19,697 14,605 14,605

Other financial assets 44,373 48,402 230,388 236,670

Total non-current assets 500,923 476,414 336,390 332,368

Total assets 715,116 764,389 630,515 696,187

FOODSTUFFS (WELLINGTON) CO-OPERATIVE SOCIETY LIMITED & SUBSIDIARIES25

bALANCE SHEETS AS AT 31 MARCH 2011

GROUP PARENT

NOTE 2011 ($000)

2010 ($000)

2011 ($000)

2010 ($000)

Current liabilities

Trade and other payables 199,571 198,765 180,888 179,432

Borrowings 134,700 240,200 134,700 240,200

Liabilities to Members 4 64,493 63,185 64,493 63,185

Other financial liabilities 211 522 211 522

Total current liabilities 398,975 502,672 380,292 483,339

Non-current liabilities

Borrowings 87,416 9,474 87,416 9,474

Liabilities to Members 4 82,060 101,920 82,060 101,920

Deferred tax liability 40,376 1,363 2,176 2,725

Other financial liabilities 2,539 - 2,539 -

Total non-current liabilities 212,391 112,757 174,191 114,119

Total liabilities 611,366 615,429 554,483 597,458

members' funds

Reserves (18,460) (10,763) (2,539) 2,686

Retained earnings 122,210 159,723 78,571 96,043

Total Members' funds 103,750 148,960 76,032 98,729

Total liabilities and members' funds 715,116 764,389 630,515 696,187

For and on behalf of the Board of Directors on 13 June 2011:

B J DRAKe Chairman C A WILSON Executive Director

FOODSTUFFS (WELLINGTON) CO-OPERATIVE SOCIETY LIMITED & SUBSIDIARIES 26

SUmmARY FINANCIAL STATEmENTS

CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 MARCH 2011

GROUP PARENT2011

($000)2010

($000)2011

($000)2010

($000)

Cash flows from operating activities

Cash provided from:

Receipts from customers 2,277,804 2,232,114 1,943,782 1,895,524

Rent received 55,368 50,097 52,636 47,803

Interest received 1,642 1,055 1,638 1,055

Income tax refunded 447 - 447 -

2,335,261 2,283,266 1,998,503 1,944,382

Cash applied to:

Payments to suppliers and employees 2,222,756 2,217,190 1,906,971 1,901,779

Interest paid 17,021 12,954 16,386 12,850

Income tax paid - - - -

2,239,777 2,230,144 1,923,357 1,914,629

Net cash flows from operating activities 95,484 53,122 75,146 29,753

Cash flows from/(used in) investing activities

Cash provided from:

Dividends received 1,391 4,944 1 90,001

Matured bank deposits 45,000 - 45,000 -

Change in loans to subsidiaries and associates - - 429 -

Advances repaid by Members - 343 - 343

Proceeds from sale of property, plant and equipment 18,723 58,227 1,381 254

65,114 63,514 46,811 90,598

FOODSTUFFS (WELLINGTON) CO-OPERATIVE SOCIETY LIMITED & SUBSIDIARIES27

CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 MARCH 2011

GROUP PARENT2011

($000)2010

($000)2011

($000)2010

($000)

Cash applied to:

Investment in bank deposits - 45,000 - 45,000

Investment in associates - 400 - 400

Change in loans to associates 780 783 - 59,651

Advances provided to Members 1,785 - 1,785 -

Purchase of property, plant and equipment 61,486 71,437 21,949 20,957

Purchase of intangible assets 3,704 4,752 3,533 3,179

Loss from sale of investments 416 - - -

68,171 122,372 27,267 129,187

Net cash flows used in investing activities (3,057) (58,858) 19,544 (38,589)

Cash flows from financing activities

Cash provided from:

Net proceeds from borrowings received - 58,195 - 58,195

Cash applied to:

Net borrowings repaid 27,055 - 27,558 -

Net repayment of Member liabilities 69,217 47,892 69,217 47,892

96,272 47,892 96,775 47,892

Net cash flows used in financing activities (96,272) 10,303 (96,775) 10,303

Net increase/(decrease) in cash held (3,845) 4,567 (2,085) 1,467

Cash held at the beginning of the year 9,043 4,122 6,318 4,497

Exchange gains/(losses) on foreign currency balances (250) 354 (250) 354

Cash held at the end of the year 4,948 9,043 3,983 6,318

FOODSTUFFS (WELLINGTON) CO-OPERATIVE SOCIETY LIMITED & SUBSIDIARIES 28

NOTES TO THE SUmmARY FINANCIAL STATEmENTS FOR THE YEAR ENDED 31 MARCH 2011

NOTE 1 BASIS OF PREPARATION

These summary financial statements are for the reporting entity Foodstuffs (Wellington) Co-operative Society Limited (“the Society”) and its subsidiaries

(“the Group”). The Society is a co-operative registered under the Industrial and Provident Societies Act 1908 and is a profit-oriented entity domiciled in

New Zealand. The ultimate parent entity is Foodstuffs (Wellington) Co-operative Limited.

The summary financial statements have been prepared in compliance with Financial Reporting Standard Number 43 “Summary Financial Statements”, and

have been extracted from the full financial statements that comply with New Zealand International Financial Reporting Standards. These summary financial

statements cannot be expected to provide as complete an understanding as provided by the full financial statements, which can be obtained from

57 Kiln Street, Silverstream, Wellington.

The full financial statements, authorised for issue on 13 June 2011, have been audited and an unqualified audit opinion has been issued.

NOTE 2 INCOmE TAx ExPENSE GROUP PARENT

Reconciliation of the prima facie income tax payable on profit 2011 ($000)

2010 ($000)

2011 ($000)

2010 ($000)

Profit/(loss) before income tax 405 (4,958) (18,837) 65,367

Income tax charge at 30% (2010: 30%) 122 (1,487) (5,651) 19,610

Non-assessable dividends - - - (27,000)

Non-deductible expenses/(non-assessable income) 142 2,340 1,318 2,155

Change in tax provisions (temporary differences) (2,254) 577 (1,665) 1,023

Share of associates' results reported net of tax (561) (363) - -

Effect of changes in tax legislation - building depreciation 41,921 - 46 -

- tax rate change (2,462) - 44 -

Tax losses for which no deferred income tax asset was recognised 1,009 362 4,542 6,074

Adjustments in respect of current income tax for prior years 1 417 1 416

Income tax expense/(credit) 37,918 1,846 (1,365) 2,278

FOODSTUFFS (WELLINGTON) CO-OPERATIVE SOCIETY LIMITED & SUBSIDIARIES29

NOTE 2 INCOmE TAx ExPENSE (CONTINUED) GROUP PARENT

Amounts recognised in the profit or loss 2011 ($000)

2010 ($000)

2011 ($000)

2010 ($000)

Current income tax

Current income tax charge - - - -

Adjustments in respect of current income tax for prior years 1 417 1 416

Deferred income tax

Relating to origination and reversal of temporary differences 37,917 1,429 (1,366) 1,862

Income tax expense/(credit) 37,918 1,846 (1,365) 2,278

Changes in tax legislation

In May 2010 legislation was passed to reduce the New Zealand corporate tax rate from 30% to 28%, and to remove the ability to claim tax depreciation on

buildings with an estimated useful life greater than 50 years, effective for the 2011/2012 income tax year. The tax effect shown is the estimated impact on the

value of deferred tax as a result of the changes from 1 April 2011.

NOTE 3 ADvANCES TO mEmBERS GROUP PARENT2011

($000)2010

($000)2011

($000)2010

($000)

Current

General loans 1,778 1,252 1,778 1,252

Temporary advances 405 5 405 5

Point-of-sale equipment upgrade loans 1,354 221 1,354 221

3,537 1,478 3,537 1,478

Non-Current

General loans 1,148 1,311 1,148 1,311

Point-of-sale equipment upgrade loans 34 127 34 127

1,182 1,438 1,182 1,438

FOODSTUFFS (WELLINGTON) CO-OPERATIVE SOCIETY LIMITED & SUBSIDIARIES 30

NOTES TO THE SUmmARY FINANCIAL STATEmENTS

NOTE 4 LIABILITIES TO mEmBERS GROUP PARENT2011

($000)2010

($000)2011

($000)2010

($000)

Current

Member deposits 10,333 10,813 10,333 10,813

Unredeemed rebates 32,340 39,886 32,340 39,886

Deferred rebate certificates 21,820 12,486 21,820 12,486

64,493 63,185 64,493 63,185

Non-current

Share deposits 29,666 27,493 29,666 27,493

Trading and membership shares 704 720 704 720

Deferred rebate certificates 51,690 73,707 51,690 73,707

82,060 101,920 82,060 101,920

NOTE 5 INvESTmENTS IN SUBSIDIARIES

The consolidated financial statements include the financial statements of Foodstuffs (Wellington) Co-operative Society Limited and the subsidiaries listed in

the following table. All entities have a balance date of March 31 and are incorporated and domiciled in New Zealand.OWNERSHIP INTEREST HELd

Name NATURE OF bUSINESS 2011 2010

Toops Wholesale Limited Wholesale Trading 100% 100%Toop & Johnston Limited (i) Wholesale Trading 100% 100%Toops Liquor Merchants Limited (i) Wholesale Trading - 100%Foodstuffs Properties (Wellington) Limited Property 100% 100%AF Logistics Limited Transport & Logistics 100% 100%Wardell Bros. & Coy Limited Investment 100% 100%Rowntrees Master Butchers Limited (ii) Retail 100% 100%Duffy & Finn (Porirua) Limited (ii) Retail - 100%Jockey’s Limited (ii) Retail 100% 100%

(i) 100% owned by Toops Wholesale Limited (ii) 100% owned by Wardell Bros. & Coy Limited

FOODSTUFFS (WELLINGTON) CO-OPERATIVE SOCIETY LIMITED & SUBSIDIARIES31

NOTE 6 INvESTmENTS IN ASSOCIATES

The Society has the following beneficial holdings in associated entities. All entities are incorporated and domiciled in New Zealand.

OWNERSHIP INTEREST HELd

Name bALANCE dATE NATURE OF bUSINESS 2011 2010

The Bell Tea Company Limited 31 March Manufacturing 33% 33%Foodstuffs (NZ) Limited (a) 30 June Brand management 33% 33%Foodstuffs Own Brands Limited (b) 28 February Procurement 33% 33%Foodstuffs Fuel Limited 31 March Procurement 33% 33%Foodstuffs Ventures (NZ) Limited 31 March Investment 33% 33%Foodstuffs Publishing Limited 31 March Publishing 33% 33%Foodstuffs Retail Financial Services Limited 31 March Financial services 33% 33%The Woodward Group Limited 31 March Retail/manufacturing 50% 50%Foodstuffs Inbound Limited 31 March Transport 33% 33%Foodstuffs Liquor New Zealand Limited 31 March Retail 33% 33%

(a) Foodstuffs (NZ) Limited has a different balance date to the Society due to it requiring to levy in arrears based on actual results of the owners whom all have balance date 3-4 months prior.

(b) Foodstuffs Own Brands Limited has a different balance date to the Society due to the balance date being aligned with Foodstuffs (Auckland) Limited which also owns 33% of the associate.

Associates' summary financial information 2011 ($000)

2010 ($000)

Total assets 107,820 96,217

Total liabilities 58,291 52,210

Net assets 49,529 44,007

Group’s share of associates' net assets 21,566 19,697

Total revenue 97,958 83,560

Total profit for the period 5,222 3,626

Group’s share of associates' profits/(losses) after tax 1,869 1,211

FOODSTUFFS (WELLINGTON) CO-OPERATIVE SOCIETY LIMITED & SUBSIDIARIES 32

NOTES TO THE SUmmARY FINANCIAL STATEmENTS

NOTE 7 RELATED PARTIES

Directors and their interests

Due to the nature of the Society, Directors are elected through a democratic process. The Directors elected by individual Members have an interest in the

Society by virtue of their membership of the Society. As a key role of the Society is to provide a federal service to the Society’s Members, material transactions

are conducted with these Members, some of whom are represented on the Board.

All trading and financial transactions with Directors are conducted on the same terms and conditions as those which apply to Members. Other than this, no

Director had a material interest at any time, during the periods covered by these financial statements, in any contract of significance with the Parent or any of

its subsidiaries.

GROUP

Transactions with Directors 2011 ($000)

2010 ($000)

Sales to Director controlled companies 490,360 484,689

Receivables and advances due from Director controlled companies 20,042 21,287

Payables due to Directors and Director controlled companies 35,680 34,326

Guarantees of bank facilities for Director controlled companies 27,488 32,440

Transactions with related parties

The Group undertakes transactions with subsidiaries and associates, which principally consist of loans provided to, and received from, related parties;

the exchange of goods and services in sales and purchases; and the provision of treasury, accounting, legal, taxation, and other administrative services.

Transactions with subsidiaries are eliminated on consolidation and are not disclosed in this note.

Transactions with related parties are conducted on an arm’s length basis and on normal commercial terms and conditions.

FOODSTUFFS (WELLINGTON) CO-OPERATIVE SOCIETY LIMITED & SUBSIDIARIES33

NOTE 7 RELATED PARTIES (CONTINUED)

Transactions and balances with related parties are as follows:

SUbSIdIARIES ASSOCIATES

Group 2011 ($000)

2010 ($000)

2011 ($000)

2010 ($000)

Revenue - sale of goods - - 778 329

Dividends received - - - -

Purchases of goods or services - - 11,167 11,951

Amounts owed by related parties - - 7,727 6,899

Amounts owed to related parties - - 11,116 9,474

Parent

Revenue - sale of goods 10,014 6,282 778 329

Dividends received - 90,000 - -

Purchases of goods or services 49,127 46,624 11,167 11,951

Amounts owed by related parties 345,553 346,761 7,727 6,899

Amounts owed to related parties - - 11,116 9,474

NOTE 8 CONTINGENCIES

GROUP

Guarantees 2011 ($000)

2010 ($000)

Guarantee of Members’ bank facilities 129,892 120,052

The Society acts as guarantor for a number of Members’ bank loans. In the event that a Member defaults on a loan arrangement, the Society is liable for

the loan payments. The estimated fair value of these guarantees are negligible as there is no expectation that the Society will be required to settle the

guarantees provided.

FOODSTUFFS (WELLINGTON) CO-OPERATIVE SOCIETY LIMITED & SUBSIDIARIES 34

FRESH: UNITY

FRESH: FUTURE Foodstuffs (Wellington) Co-operative Society Ltd