Good morning, ladies and gentlemen. My name is Mimi Kwa, and I'm your MC for today's annual general meeting of Coles Group Limited. My role is to help you understand how the meeting will work, how you can ask questions, and how you can vote. I'd like to begin by thanking the Aboriginal and Torres Strait Islander suppliers who provided our acknowledgement of country today.
I would also like to take this opportunity to acknowledge the Wurundjeri people of Kulin Nation in Hawthorn East, where I am standing today, and also acknowledge the traditional custodians of country throughout Australia and pay my respects to elders past and present. I'd like to extend that respect to all Aboriginal and Torres Strait Islander Australians joining us at the AGM today.
Due to the ongoing uncertainty relating to the COVID-19 pandemic, Coles made the decision to conduct its annual general meeting virtually this year in the interests of health and safety. While we will not be able to meet in person, a virtual meeting enables all shareholders, regardless of where you live, to participate in the meeting. I will explain how this will work shortly. Before I hand over to the Chairman to formally open the meeting, I'd like to explain the technology we are using to conduct the meeting and the procedures which will be adopted for this meeting.
As was the case last year, Coles will again be using the Lumi platform as its online system for this meeting. If you experience any issues watching or participating in our meeting today, please call our share registry, Computershare Investor Services, on 1300- 171- 785 within Australia or +61 39415 4078 if you are outside of Australia. Both these numbers are also shown on your screen. If we experience a major technical difficulty which results in it being impracticable to continue the meeting, we will adjourn the meeting and make an announcement on the ASX regarding further details of the meeting.
Now to questions. This year, shareholders and appointed proxy holders may ask both written and live audio questions through the online platform. Detailed instructions on how to ask questions were set out in the online meeting guide available on Coles AGM webpage, a link to which is on the left-hand side of your screen.
If you would like to submit a written question, please click on the messaging icon at the top of the left-hand side of your screen. Then type your question in the text box on the top of that screen. To submit your question, click the small arrow on the right-hand side of the text box. Once you've submitted your question, a confirmation will appear that your question has been received, and your question will be placed in a queue. When submitting your question, please state in the text box the item of business to which your question relates so that we can order it accordingly.
Please ensure that your question is as clear and as succinct as possible, as we will not be able to clarify aspects of your question directly with you once it has been submitted.
As there is a 1,000-character word limit for each question, please submit each of your questions separately. If we receive a number of questions that are similar, we may answer those questions collectively. If the questions are too lengthy, we may need to summarize them in the interest of time. When questions for each proposed resolution are ready, I will read the questions for the Chairman to answer.
As there is a short time lag in the broadcast of these proceedings to you, we will pause at the end of discussion time for each item of business to check if any further questions have been submitted before moving on to the next item. We encourage you to please submit all your written questions now to assist us in getting through as many of your questions as possible.
Consistent with the approach taken at our previous AGMs, the Chairman will be addressing the questions relating to a particular item of business during discussions on that item. If you would like to ask a verbal question, a live audio facility is available during this meeting via our online platform. Please note that there is a slight delay in the broadcast, so you will need to pause the broadcast you are watching on the Lumi platform before accessing the audio facility. To access the audio facility, click on the link under Asking Audio Questions.
The next page will open where you will be asked to register your name and the topic of your question. Once you have submitted these details, you will be asked whether you are ready to connect to the audio facility.
Once connected, you will be able to listen to the meeting in real time with no delays while waiting to ask your question. When the meeting is ready for you to ask your question, you will hear me announcing your name. You will then hear a beep that indicates your microphone is activated. Once you hear the beep, please ask your question. If you're asking a verbal question, we recommend you wait until the relevant agenda item is being discussed. This is because you will not be able to see the speaker or presentation slide while you are queuing to speak, although you will be able to hear the meeting.
To connect successfully to the meeting using the audio facility, you must use the latest version of Chrome, Safari, Edge, or Firefox. Please do not use Explorer. If you're not using the latest version of Chrome, Safari, Edge, or Firefox, or you are logged in through Explorer, please note that you may still be successful in registering your name and the topic of your question on the audio facility. However, after you've entered these details, the platform may automatically disconnect you before you have had an opportunity to ask your question.
If you experience any issues using the audio facility, we encourage you to return to the Lumi platform and ask your question in writing instead. Practically, it is much easier to type your question into the online platform rather than using the audio facility. We do encourage you to type your questions if you can.
If you are experiencing any issues with either the audio facility or with submitting your written questions, you can call Computershare on 1300- 171- 785 within Australia or +61 39415 4078 if you are outside of Australia for assistance. These numbers are now shown on your screen. All questions must relate to an item of business under consideration and to the company as a whole. If your question is of a personal nature relating to your shopping experience at any Coles Group business or in relation to your personal shareholdings, these questions will not be put to the meeting.
Coles will instead contact you after the meeting to separately ensure you receive individual support. We will ensure that there is a reasonable opportunity for shareholders as a whole to ask questions and make comments at this meeting.
However, there may not be time to answer every question or address every comment received. In order to enable all shareholders a reasonable opportunity to be heard, we ask that shareholders restrict themselves to no more than two questions or comments initially. Shareholders were encouraged to submit questions prior to the meeting. Thank you to those shareholders who have done so. We have sought to address common themes in these questions in the formal addresses, which will shortly be made.
Coles will also contact some shareholders who submitted questions of a more specific nature. Now to voting. Once the Chairman has opened the poll, a voting icon will appear at the top on the left-hand side of your screen. Each proposed resolution will be shown on the screen. Click on this voting icon to submit your vote on each proposed resolution.
You can then vote for, against, or abstain on each proposed resolution. Once the Chairman formally declares the poll open, you may vote on a proposed resolution at any time during the meeting. You do not need to wait for the proposed resolution to be considered before submitting your vote. Please note that there is no submit or send button, and your selection is automatically recorded. You may change your vote at any time prior to the poll being closed.
If you require any assistance, please contact Coles Share Registry, Computershare Investor Services, whose contact details are again shown on your screen. The contact details are also available at all times during the meeting if you click on the home icon on the left-hand side of your screen. Just another reminder to please submit your written questions now. It is my pleasure to now introduce to you James Graham, your Chairman.
Thank you very much, Mimi, and good morning, ladies and gentlemen. My name is James Graham, and as Chairman of Coles Group Limited, I particularly thank our Aboriginal and Torres Strait Islander suppliers for the acknowledgement of country and pay my respects to all elders past, present, and emerging, and extend my welcome to all shareholders to our annual general meeting this morning. It had been our hope that this meeting could have been held in person, but in the light of the many restrictions associated with COVID-19, we are doing so virtually.
Nevertheless, as Mimi has foreshadowed, it is our intention to simulate the in-person meeting to the greatest extent practical while ensuring we keep everyone safe. As we have a quorum, I now declare the meeting open, and in doing so, I would like to introduce my fellow directors.
Joining me here in Sydney are Jacqueline Chow, and Richard Freudenstein, and in Melbourne, Abi Cleland, Paul O'Malley, Wendy Stops, and our Managing Director and Chief Executive Officer, Steven Cain, together with our Company Secretary, Daniella Pereira, and from North America, David Cheesewright, who is joining by teleconference. For all of us, this last 20 months has presented so many unparalleled challenges, and I trust that each of you has been able to adapt in manageable ways to the many restrictions which have been aimed at minimizing community risk.
As we progressively open up our economy against the backdrop of increasingly high vaccination rates, we look forward with optimism to restoring our ability to actively participate in and enjoy the Australian way. During the pandemic, Coles has played an important part in ensuring the Australian community has had ready access to food, drinks, and other essentials.
Fulfilling this need has required an extraordinary level of cooperation and coordination with suppliers, state and federal governments, health authorities, transport companies, and especially our team members. It has been extremely pleasing to see the way in which each of these participants has adapted to the abnormal demands and has delivered whatever has been required.
With more than 7,000 suppliers and 120,000 team members, enabling us to offer more than 30,000 different food items and more than 6,000 different liquor items across our portfolio of nearly 2,500 supermarkets, liquor, and Coles Express stores. Everyone has worked together to meet the needs of our customers across the country, for which I express our very great thanks. In the last financial year, we experienced 11 different lockdowns, and in the first four months of this current year, we have had a further six.
Each of these has placed pressure on all elements of our supply chain, distribution centers, and stores, including the need for team members to isolate when classified as close contacts of affected persons. At its recent peak, we had as many as 3,000 team members in isolation at any one time. Thankfully, our experience throughout the hundreds of millions of transactions in our stores since the pandemic began is that there is almost no evidence to demonstrate instances of transmission between customers and our team members.
Financially, despite COVID, we managed the impacts of additional costs and saw positive progress on most financial metrics during the 2021 financial year. In particular, sales revenue increased by 3%, including a 52% increase in demand for online sales. Net profit after tax rose by 7.5% to just over AUD 1 billion, and fully franked dividends declared for the year rose by 6.1%.
Our net debt remained low at AUD 355 million, and we saw an increase in our average debt maturities while maintaining our solid investment-grade credit rating. With our strong executive team, Coles is well positioned to progress the strategy announced in June 2019, where we established our overarching aim to be the most trusted retailer in Australia and to grow long-term shareholder value. Coronavirus has not varied this strategy but has accelerated our efforts in some areas as we continue to see trust and value as the cornerstones of all we do.
During the year, we saw a significant improvement in our safety record, with a 15.7% improvement in our total recordable injury frequency rate, an increase in the significance of Coles' own brand products, with exclusive-to-Coles products representing 32% of total supermarket sales, an expansion of liquor sales across all three banners, and an expansion in our online capabilities with a strengthened management team and supporting technological infrastructure, enabling us to deliver customers greater choice and availability.
Coles Express also performed strongly during the year, driven by growth in our convenience store sales despite a decline in the sale of fuel as a result of COVID impacts on traffic flows.
Our two transformational projects, which we embarked upon in early 2019, have continued to progress well, with ongoing construction of our two automated distribution centers in partnership with Witron in Queensland and in New South Wales, and our two customer fulfillment centers in partnership with Ocado in Melbourne and in Sydney. Across these four sites, we have averaged the total construction workforce of approximately 800, which numbers are expected to rise materially over the period ahead as construction, installation, and fit-out continues.
Our store portfolio continues to be renewed and refined, with our opening a total of 64 new stores in the 2021 financial year and with our portfolio now including 11 Coles Local, each of which is focused upon our successfully delivering a differentiated and tailored customer offer.
It is also important to note the commitments that we have made during the 2021 financial year under our Together to Zero strategy. This is another important part of our long-term development and builds upon the work undertaken in earlier years. Under the Together to Zero strategy, we have set out ambitious goals in three key sustainability measures of climate, waste, and hunger.
As regards climate, we have committed to powering the entire Coles Group with 100% renewable electricity by the end of financial year 2025, and pleasingly, since the end of the last financial year, we have signed the additional renewable electricity agreements, which will enable us to reach that goal. Secondly, we have committed to reducing our combined Scope 1 and Scope 2 greenhouse gas emissions by more than 75% by the end of financial year 2030 from a 2020 financial year baseline.
Thirdly, we have committed to deliver Net Zero greenhouse gas emissions by 2050. The other two main measures of our Together to Zero strategy relate to our commitments to reducing waste, and particularly food waste, and our commitments to reduce hunger, especially through our long-standing partnerships with SecondBite and Foodbank, where we donate unsold edible food from our supermarkets and distribution centers to community rescue organizations. In each of these initiatives, we know we can make a significant difference.
These are important commitments as they help to define who we are and how we operate. Ultimately, we will be judged by you, our shareholders, and all other stakeholders in how we measure up, recognizing that these characteristics build the trust, which is essential for our long-term value creation.
In that regard, I note that in the recently released report by the World Benchmarking Alliance, where they assessed and ranked the sustainable business practices of 350 food and agriculture companies globally, Coles ranked 12th out of 350 in the overall benchmark, and amongst food retailers, we ranked second out of 62 globally, with Tesco rated as number one. I hasten to say, however, that there is a great deal more to be done across all aspects of sustainability, and I am sure we will see this area being highlighted not only by us but by many other major companies in our industry over the years ahead.
In this context, I note our position as one of Australia's largest employers of Aboriginal and Torres Strait Islander people, with some 4% of our team members being Indigenous.
We have a target of increasing this to 5%, which we had hoped to meet by December 2023. But COVID has impacted local communities and some aspects of our Indigenous recruitment initiatives. While we remain focused on meeting this target, we may need to update the timeframe to achieve it in our sustainability report next year.
Before inviting our Managing Director and Chief Executive Steven Cain to address the meeting, I would like to formally note my thanks for the extraordinary efforts which each of my fellow board members and each of the senior leadership team have demonstrated during this last year. The extra engagement in so many areas and on so many occasions has been given without hesitation. In doing so, it has significantly impacted the group's ability to deliver long-term shareholder value in this fast-changing world.
As a precursor to Steven addressing us, we would now like to present a brief video on some of our sustainability achievements over this past year.
We have been on our sustainability journey for a long time and in the past year have made some bold ambitions and commitments that we believe in. Our new sustainability strategy focusing on Together to Zero and Better Together was launched, which has been brought to life at our sustainability concept store in Moonee Ponds, Victoria, designed to reduce our environmental impact and promote greater community connection.
Our new sustainability marketing campaign is raising awareness of the challenges and opportunities we face as a community and our shared responsibility to address these, and this year, we launched our most sustainable Christmas range yet. We have also been recognized as a leader in sustainable business practices on an international stage as well as in Australia.
Together to Zero sets out our ambitions across key sustainability areas, including emissions, waste, and hunger. We were proud to announce our new energy and greenhouse gas emissions targets. We are delivering on our commitments. We recognize the role we can play in reducing waste, particularly food waste and packaging. We announced our new target for 85% solid waste diversion from landfill by FY25, and we are working together with our supplier partners, government, and industry to accelerate packaging sustainability and transition to a Circular Economy in Australia.
Our strong community partners help drive our agenda forward as we mark our 10 years with REDcycle. In partnership we developed Polyrok, which was used in our car parks in the first commercial construction project in Australia.
We also no longer sell single-use plastic tableware, and in July 2021, we committed to no more plastic or recycled plastic collectible toy campaigns. We continue to help Australians in need, celebrating 10 years of working with SecondBite, and since 2003, have been working with Foodbank. Better Together sets out our ambitions as to how we will work with our stakeholders to drive positive change. We have achieved our biggest year-on-year improvement in the percentage of women in leadership, and we're recognized as a gold employer at the 2021 Australian Workplace Equality LGBTQ Inclusion Awards.
We are proud to be one of Australia's largest private sector employers of Aboriginal and Torres Strait Islander peoples. We recognize the unique position we hold in Australia and are focused on working together to build strong, resilient communities. Coles Nurture Fund continues to support producers to drive sustainability, innovation, and growth.
We have continued to support independent certification and verification of Coles' own brand products. We are also focused on providing customers with fresh Australian fruit and vegetables and providing products with higher standards in animal welfare. This is only some of the work we have been able to achieve in an exciting year for Coles. Together, we believe we can be leaders of change. We recognize we are not working alone and need to continue to work collaboratively to find a more sustainable future.
I now have pleasure in inviting Steven to address us.
Thank you, Chairman, and good morning to our shareholders and guests joining us online. It's great being here today, given my tie, it's first outing of the year. As James noted, it is now two and a half years since we set out our strategy to transform our business so that we can win in our second century. Our vision is clear. We want Coles to be the most trusted retailer in Australia and grow long-term shareholder value.
Since the beginning of the pandemic, just over 18 months ago, our 120,000-plus team members have provided an essential service to the Australian community, completing more than 1.7 billion transactions in stores and online, for which I thank them. The current Delta strain has undoubtedly been the most disruptive period for everyone in our industry, from our thousands of suppliers to the more than 20,000 team members we have had in isolation. As customers, you will have seen significant changes we have made in our stores in order to provide a safe environment in which to work and shop.
It has become somewhat second nature for many of us that the weekly shop starts by putting on a mask, scanning a QR code at the door, and sanitizing. Behind all of this is our supply chain team, who have also transformed their ways of working, including using shift bubbles and rapid antigen tests to ensure they remain safe and can keep our stores replenished.
While 2021 did not deliver the return to normality that we all hoped for, the path towards a safer Australia in which we can enjoy the freedoms we once took for granted depends on the success of the vaccination program. Since the vaccine became available, we have encouraged all our team members to be vaccinated against COVID-19 as soon as they can, subject to health advice.
To make it easier for them to access vaccines, we have partnered with state and federal governments to provide COVID vaccinations on site to eligible team members at our distribution centers and manufacturing facilities, as well as priority booking links for our store team members. We have also supported our team by providing access to paid personal leave while they are attending vaccination appointments.
State government vaccination mandates for essential workers in Victoria and for high-risk LGAs in New South Wales have been highly successful in increasing vaccination rates in the community and among our team. More recently, the Northern Territory and WA governments have made health orders requiring essential workers, including our team members, to be vaccinated, and we're working with our team to help them get their shots and comply with these regulations.
In New South Wales and the ACT, Coles and other major retailers have also made vaccination a requirement to work in stores, distribution centers, and support centers unless team members have a valid medical exemption. The new measures will help Coles to protect the health of team members in New South Wales, ACT, Victoria, the Northern Territory, and Western Australia. This includes those who are unable to be vaccinated for medical reasons, as well as vulnerable family members such as elderly relatives and children who are not eligible for vaccination.
We have been delighted with the uptake of vaccine by our team members, with more than 70% of team members across Victoria and New South Wales now fully vaccinated and more than 94% having had at least one dose.
Coles will continue to work with health authorities and team members to strongly encourage the uptake of vaccination in Queensland, South Australia, and Tasmania. I am pleased to say that alongside managing COVID, we have continued to execute our strategy while moving quickly to respond to changes in consumer demand and behavior. In many ways, your company is exiting the pandemic a better business.
With regards to inspiring our customers, both our supermarkets and liquor businesses reported improvements in their Net Promoter Scores across the year, while analysis from Roy Morgan ranked Coles as one of Australia's most trusted consumer brands for the second year in a row. In the first half of the financial year, we became the first and only mainstream Australian supermarket to see door-to-door delivery of paper catalogs.
Not only was this a win for sustainability as we removed 260 million catalogs every year from the waste stream, it also marked a step change in the way we will use technology for more direct, personalized, and relevant engagement with our customers through our digital platforms. As ever, delivering trusted value for our customers remained at the forefront of our offer, and we placed a net 474 new products on everyday low prices during the year.
Our Exclusive to Coles products accounted for 32% of sales by value, up from 29% in FY19, as customers increasingly embraced the value and award-winning quality in our own brand range. In Coles Liquor, we have made significant progress in the first year of our refreshed strategy to become a simpler, more accessible, locally relevant drinks specialist.
We have reshaped stores so they're easier for customers to shop, delivered trusted value by lowering prices for longer, and executed range changes in key growth categories such as local craft beers, gin, and low or no alcohol products. Our portfolio of exclusive products continues to collect awards across the country and even around the globe, bringing home a total of 479 medals and awards during the year. That's over 100 more than the year before.
In Express, where coffee is a top seller, customer satisfaction has also risen significantly since we installed Swiss-made automated espresso machines that allow you to be your own barista for AUD 1. The coffee beans, which are ground fresh for every cup, are blended specifically for Coles Express by Melbourne-based coffee roaster Aurigin, and they collected more awards than any other coffee bean at the 2020 Golden Bean Competition, the largest competition for coffee roasters in the world, would you believe.
Our Smarter Selling program to drive efficiency in every part of our business and reduce costs by AUD 1 billion has now delivered cumulative savings of more than AUD 550 million over two years, including approximately AUD 300 million in FY21. In our supply chain, this includes the use of advanced logistics planning tools to reduce truck movements and deliver products to our stores quicker so that they stay fresher longer at home.
We've also introduced new technology to help our stores forecast demand and improve availability for our customers, while artificial intelligence helps us to manage markdowns more effectively.
Here in our store support centre, we've implemented a new payroll system, replacing more than 16 legacy systems and simplifying ways of working for our team. We've also completed 65 store renewals, which included 10 Format A's, 36 Format C's, and 4 Coles Locals, which included our first Coles Local that you can see on the screen there in Ascot, Queensland. In liquor, the rollout of the First Choice Liquor Market format reached 79% of the First Choice network, and we continue to receive positive feedback from customers on the trial of our new black-and-white Liquorland format.
Of all the progress we have made against our strategic goals, one of the things we are proudest of is the way we are fulfilling our ambition to be Australia's most sustainable supermarket, much of which James has already covered and you've just seen in the video.
Within our Winning Together pillar, being better together is about truly engaging an increasingly diverse team to make Coles a great place to work for everyone. We have continued to invest in mental health and well-being, working with the Resilience Project to help build our teams in strength, with regular challenges focused on the key areas of gratitude, empathy, and mindfulness. Throughout this month, we are also a major partner of Movember to raise funds for men's health across the group.
Our leadership in LGBTQI inclusion was also recognized with our first Gold Australian Workplace Equality Index award, and a focus on the development of female leaders in store, manager, and technology roles contributed to a 2.3 percentage point improvement in women in leadership positions.
Since the end of the financial year, we have further committed ourselves to progress in this space, converting AUD 1.3 billion of our bank debt facilities to sustainability-linked loans that reward us with lower interest rates if we reach agreed targets in three key areas of our sustainability strategy, namely the diversion of waste from landfill, reduction in greenhouse gas emissions, and an increase in the percentage of women in leadership roles.
Our supplier relationships have never been more important to us than they've been during the pandemic, and this was reflected in our highest-ever engagement score in the 2021 Advantage Supplier Survey, the widest supplier survey in Australia.
Working with our dairy farmers, we extended our direct milk sourcing model to Tasmania, and we further expanded the model in Victoria, New South Wales, and South Australia to supply Coles brand cheese, allowing more dairy farmer suppliers to enter longer-term direct relationships with Coles. I will now turn to our financial performance.
In a year of continued disruption, during which we were also cycling the escalated demand we saw in the first few months of 2020, I am pleased to be able to report that Coles not only increased annual revenue and earnings for all three operating divisions, but also that earnings growth exceeded revenue growth as we achieved operating leverage in supermarkets, liquor, and express. Our supermarkets increased sales by 2.6% or 9.6% on a two-year basis.
Our Victorian stores saw elevated demand during the first half as a result of the extended lockdown, while our customers nationally responded positively to value campaigns, including helping lower the cost of breakfast, lunch, and dinner, and, of course, the MasterChef cookware and knife campaigns, which were very popular.
A highlight was the growth we have achieved in e-commerce as we work to improve the customer experience, including expansion of our home delivery click-and-collect offers, the launch of same-day home delivery, our same-day click-and-collect service called Coles Rapid, and our e-commerce subscription business called Coles Plus. Our supermarkets' EBIT margin increased by 13 basis points as the stronger sales and the benefits of smarter selling and strategic sourcing initiatives were offset by the COVID costs incurred during the year.
In liquor, sales increased by 6.6% or 15.1% on a two-year basis as venue closures and lockdowns boosted at-home consumption.
E-commerce sales growth of 79% was underpinned by the opening of three dark stores in Victoria, Queensland, and WA during the year. Liquor EBIT grew by 19.6% as fixed costs were fractionalized across a base of elevated sales. For Express, convenience store sales grew by 7.7%, driven by growth in food to go, in particular our award-winning coffee, which I referred to earlier. Express EBIT grew by 103% despite challenges in fuel volumes from reduced road traffic as we focused on convenience store sales and cost control.
Our balance sheet remained strong with the flexibility to fund our future growth. At the end of the financial year, we had net debt of AUD 355 million, down seven million from the prior year, with undrawn facilities of AUD 2.4 billion.
Over the course of the year, our leverage ratio reduced from 3.1x to 2.8x EBITDA, and we lengthened our average debt maturity from 5.6 years to 6.9 years by issuing AUD 450 million of debt securities, comprising AUD 300 million of 10-year fixed-rate notes and AUD 150 million of 5-year floating-rate notes, with the proceeds used to repay bank debt. We remain committed to diversifying our funding sources and extending our debt maturity profile over time.
On the 28th of October, we released our sales result for the first quarter of the new financial year, which included strong e-commerce revenue growth of 48% for supermarkets, with two-year growth of 132%. We have invested to support this increased demand, with e-commerce accounting for 9% of supermarket sales in the quarter, compared to 3.6% at the end of FY19.
In our physical stores, we have seen growth in both supermarkets and liquor as lockdowns continued across New South Wales, the ACT, and Victoria. This included comparable sales growth of 1.4% or 11.1% on a two-year basis, while liquor reported comparable sales growth of 1.4% or 19.2% on a two-year basis. The impact of lockdowns on traffic numbers in New South Wales, ACT, and Victoria contributed to a 9.5% decline in comparable sales from our Coles Express convenience stores.
As we said at the time of the results announcement, lower fuel volumes are expected to impact profitability until traffic numbers return to more normal levels. Looking ahead, as vaccination rates continue to rise across the country, we are optimistic on the outlook for the Christmas period as Australians adjust to life after lockdown and are once again able to enjoy time with family and friends.
Our Christmas ranges are focused on great value, easy entertaining that will allow more time together and includes our first turducken, three birds in one, would you believe, as well as our most sustainable Christmas crackers ever, and plenty of local, low, and no alcohol drink options to wash it down with. After another year in which we've all been eating more meals at home, we've also brought back our popular MasterChef Knives loyalty program to reward customers with professional-quality stainless steel kitchen utensils, including a miniature food processor to save even more time in the kitchen.
Yesterday, we also announced that from early December, Bunnings and Officeworks will both become Flybuys partners just in time for Christmas, providing more customers with more opportunities to collect and redeem points and helping us learn more about their shopping preferences so that we can serve them better in the future and in a more personalized way. Flybuys points will now be eligible to be collected on 5.5 billion of purchases and more than 120 million transactions every month.
I'd like to express my sincere thanks to James and the board for their invaluable support and guidance over the last year and to our dedicated leadership team for their outstanding work to continue transforming our business for long-term growth while meeting the many operational challenges that have emerged over the course of the year, not least of all homeschooling.
While 2022 will be the third financial year in which the pandemic will exert an influence on our business and the lives of Australians, we are moving into a new era of COVID normal, one in which we live and work alongside the virus in the community. Accordingly, the safety of our team and the communities we serve remains our highest priority at Coles. I would like to thank our team for their ongoing commitment to serving the community in their capacity as essential workers. It is their efforts that have made Coles one of the most trusted brands in Australia.
To our customers, Coles remains committed to our purpose of sustainably feeding all Australians to help them lead healthier, happier lives. We are very much looking forward to helping you celebrate and enjoy what I am sure will be a very special Christmas and summer.
We have even started selling rapid antigen tests so you can make your events at home even safer. For our shareholders, I am pleased to say that for all the progress we have made on our strategy over the past two years, the best is yet to come as our automation and digitalization programs will help us to inspire customers and deliver market-leading efficiencies. Finally, I'd like to share with you our Coles Christmas advert, which launched last week before the chairman takes you through the rest of the meeting. Thank you.
Thank you very much, Steven. I now turn to the formal items of business at today's meeting. The notice of meeting set out information regarding items for consideration at today's Coles 2021 financial annual report, Directors' Report, Auditors' Report, re-election of Abi Cleland and Richard Freudenstein, adoption of the company's Remuneration Report, approval of short and long-term incentives to Steven Cain as Managing Director and Chief Executive Officer, and the renewal of the proportional takeover provisions in the constitution.
I will introduce each item of business separately and then invite questions for that item. For items two to six following discussion, details of the proxies and direct votes received for that item will be shown on your screen.
I will then ask shareholders and proxy holders to vote on the item, noting that you may have already done so. Please note that as this is a shareholders' meeting, only shareholders, their attorneys, proxies, and authorized representatives are entitled to submit questions, comments, and vote at this meeting. As set out in the notice of meeting, I intend to vote all undirected proxies held by me as chairman of the meeting in favour of items two to six. If you leave early, please ensure you have submitted your votes.
Voting on all resolutions can be done in advance online at any time until the poll is closed immediately before the conclusion of the meeting. Tim Hughan of Computershare will act as returning officer for the poll and will oversee the counting of the votes.
The final results will be made available after the meeting to the ASX and will be displayed on our website. I now turn to the first item of business, which is to receive and consider the financial report of the company and its controlled entities and the reports of the directors and auditor for the year ended 27 June 2021. These reports were circulated as part of the annual report and are also published on our website.
While there is no requirement to put this item to a vote, this is an opportunity for shareholders to ask questions relating to the company's financial report and the reports of the directors and the auditor. I also note that Fiona Campbell, representing the company's auditor, Ernst & Young, is attending via telephone and will be available to answer questions.
I would now like to invite questions or comments from shareholders regarding the financial report of the company and the reports of the directors and the auditor. The text of this first item of business is now shown on the screen. I will now move to the first question, Mimi. Are there any questions?
Thank you, Chairman. Yes, there are. In advance of the meeting, we received several questions regarding Coles' approach to sustainability. Several shareholders have asked why Coles is focusing on sustainability rather than on financial performance and shareholder returns. Why is sustainability so important to Coles?
Thank you, Mimi. I think in the context of the words from Steven and myself earlier in the meeting, all shareholders will appreciate that since we reset our strategy in 2019, where we placed trust and value as the overarching ambition of everything we do, all shareholders will see that it's important that we think about how we're going to deliver on that ambition, and sustainability is really a central part of doing so. I think there are three observations that I would make.
Firstly, we are a large Australian company, and we have both the opportunity and the responsibility to contribute to the practices and well-being of our Australian community as a major Australian corporation.
Secondly, all of our stakeholders, whether they be shareholders, customers, team members, suppliers, community participants, constantly tell us how important our behavior is and how important our engagement with such things as emission reduction, packaging, plastic, waste, to name just but a few, and part of that building trust with our customers means that we must be on the front foot of achieving these goals because it's with their support we will be able to continue to build the long-term shareholder value to which we aspire, and the third issue is sustainability actually makes good business sense.
Perhaps I can give you a small example which arose during our last financial year. We have around nine ambient distribution centers scattered across the country through which we move about a billion boxes or cartons a year.
These distribution centers are used to provide the product that our customers need in the stores. During this last year, we redesigned how the dispatch lanes worked in terms of taking the product from the center to the truck on its way to the store. We call this Dynamic Dispatch Lanes. Those Dynamic Dispatch Lanes have meant that the mobile equipment which we use to move the product around, we have been able to reduce the number of kilometers travelled by 20,000 kilometers during the course of the year by this change.
Now, that's got a lot of benefits. Clearly, it saves time, it saves cost, it increases our team member safety because there's less movement of goods. But the mobile equipment relies on batteries that have to be recharged.
The saving in carbon dioxide emissions from not having to recharge the batteries for that 20,000 km of travel is equivalent to 7 million tons of CO2 not going into the atmosphere as a result of that initiative. So I think that as I look across the whole portfolio of our business, there are so many opportunities for us to improve our efficiency, increase safety, improve our customer offering, and to deliver long-term sustainability, building trust, and supporting our overall ambition. Are there any other questions? Please, Mimi.
Thank you, Chairman. We have received several questions regarding Coles' in-store butchers in advance of the meeting. The questions relate to why Coles has decided to remove in-store butchers and the impact this will have on the team members involved.
Right. The issue of in-store butchers has been on our agenda for some while, partly because we've noticed that amongst our industry, most others have removed in-store butchers or, in some cases, never had in-store butchers in the first instance. And over the last many years, we have been investing in state-of-the-art automation technology to be able to prepare and pack their whole range of meat products off-site.
And in doing so, we've been able to increase our efficiency, we've been able to extend shelf life of the product that we're offering for customers, and we're able to make sure that we're delivering product of a quality and consistency, which is what we believe our customers are seeking. So earlier this year, we took the decision that we would move ahead with the change to how we delivered our meat in-store.
20% of our stores already had no in-store butcher within them. But what we found is that through a process of consultation with affected team members and the union representatives, we have been able to come to a very, I think, appropriate agreement whereby we offered alternative opportunities for employment and retraining to all of those affected. And there are some 1,400 butchers who are permanent or part-time butchers in our network.
And of those 1,400 or thereabouts, approximately a third have taken up the opportunity to take on other roles within our business for which we've provided appropriate training. For the balance, they decided that the redundancy package, which had been negotiated and agreed, was perhaps the more attractive option for them individually.
So I think it's been handled appropriately and very fairly, and it's a decision which we believe will be in the long-term interests of ensuring that what we offer customers is going to be the best possible product at the best possible price and with the greatest availability in terms of the shelf life that we're able to offer. Are there any other questions, please, Mimi?
Chairman, our next question is from Mr. Ron Guy, and he asks, "Wesfarmers CSBP and IPL have been doing the right thing by not importing phosphate from Western Sahara. Has Coles been doing due diligence on the procurement of agricultural products in regard to Western Sahara? In New Zealand, Ravensdown and Ballance provide fertilizer to dairy and produce, which could be argued is prolonging the theft by Morocco of indigenous peoples' natural resources.
A recent E.U. court ruling annulled contracts by Morocco, which involved Western Sahara natural resources. Will Coles undertake to review all New Zealand agricultural products to ensure they are not complicit in the exploitation of Western Sahara natural resources and adhere to U.N. law?"
Thanks, Mimi. I think that, first of all, I'll just make a general comment about our relationship with suppliers. We have a very comprehensive engagement with all of our suppliers, and we are very concerned about what we refer to as ethical sourcing and the approach which each of our suppliers adopts in how they run their business in supplying us with the product and produce that we are seeking.
And that process has been the subject of a great deal of attention inside our management team over the last couple of years, as occasionally we hear of instances where there have been practices which don't sound as if they necessarily are those to which we would require our suppliers to adhere to. As it relates to phosphate and the particular question raised, clearly, in fresh produce, fertilizer is a component part of many farmers' day-to-day business operations to be productive and successful.
And we require all of our suppliers to adhere to all of the Australian environmental laws, regulations, including those which relate to phosphate and its use in agricultural products.
What I would say is that in the light of Mr. Guy, and thank you for your question. In the light of your question, we will make sure that we elevate with our suppliers this issue to ensure that, like with all of our suppliers, the way in which the working relationship between our suppliers and their sourcing is meeting the standards which we very, very clearly set out in our contractual arrangements as we deal with each and every one of our suppliers. Mimi, are there any other questions, please?
Thank you, Chairman. Our next question comes from Mr. Robert Paul Kosovic, and he says, "Customer deliveries from online orders are becoming increasingly competitive on price. Will this impact margins?"
Well, thanks very much, Mr. Kosovic. You would be very well aware, I'm sure, and Steven referenced it in his comments about how we've been performing in our online activities, and partly because of COVID and partly because of an increase worldwide of customers wanting to have the ability to buy things online, we have seen this area of our business grow and grow quite substantially. In the last financial year, we saw our e-commerce sales increase by some 42%, and I think, as Steven mentioned, in the first quarter for this year, they rose by some 48%.
What we've needed to do as we've seen this business grow is to look at how we can improve the customer offering, improve the availability, and improve the ease by which our customer can participate in our online model.
You would have seen that during this last year, we increased the number of contactless delivery to the boot of a car through the click-and-collect model. In stores, over 500 of our stores now have this opportunity for click-and-collect in the car park associated with the store. That is obviously a lower-cost model because it doesn't require home delivery.
However, we know our customers are keen on a choice, and so we are constantly seeking to find ways to increase the scale of our online, to do it on a basis that reflects the timeliness of our customers' requests, and to make sure that it is done on a very efficient basis. As the scale grows, so does our opportunity to increase our efficiency.
So I think, Mr. Kosovic, it's an area where, as we've said previously, online is making a positive contribution to our business as it grows, and as we invest more in the steps to efficiency, we expect that to continue to be something which will be important to our overall well-being. Are there any other questions, please, Mimi?
Thank you, Chairman. Yes, there are. Our next question comes from Mr. Henry Kay. We have multiple questions from him. Firstly, how about allowing the use of debit cards for Coles online customers? Secondly, how about giving Flybuys the option of having the fuel discount rather than the receipt?
Thank you very much, Mr. Kay. I think Steven is, in fact, the chairman of Flybuys at the present time. As you know, Flybuys is a joint venture between ourselves and Wesfarmers, and as Steven mentioned in his address, is being expanded through the inclusion of the Bunnings and Officeworks' participation in Flybuys. But I think it might be better if perhaps Steven were to respond to the question that you have asked, Mr. Kay.
Okay. Thank you, James, and thank you, Mr. Kay. There is work going on on getting fuel discounts, the four cents, onto Flybuys in a digital manner, and we'll hopefully be making some announcements of that before the end of the financial year. So good news there, and thank you for raising that. As far as using debit cards is concerned, that's another one that is on the list, and you can expect to see some progress on that too. Thank you.
Mimi, are there any further questions?
Thank you, Chairman. We have another question from Mr. Henry Kay. "I would request that you remove wheel locks on your shopping trolleys as they are an OH&S issue for the blind and visually impaired."
Oh, Mr. Kay, thank you for your comment. The management of trolleys is a constant issue for us across the whole of our 836 supermarkets, and we have to work very much with the centers and the local councils in terms of what are the arrangements that are permitted and what opportunities there are to make sure that trolleys are safe, make sure trolleys are not a nuisance.
And the points that you have raised, I will make sure are reflected in the ongoing evaluation of how we optimize the way in which we make it easy and safe for all customers as they come and enjoy shopping at Coles. Mimi, are there any further questions?
Thank you, Chairman. We have had multiple questions on the virtual AGM experience and how Coles Group AGMs will be conducted in the future. What guidance can you provide?
I guess when I stood here last year, Mimi, I didn't think that I would be standing here this year in a similar virtual setting. I think we are a customer-focused business. We have 450,000 shareholders or a few more. We have over 20 million transactions a week with our customers. And to the extent that the regulatory framework encourages and permits us to have an AGM where there is face-to-face contact, I'm sure that that will be on our agenda going forward. That requires, to some extent, being able to make assessments of what the medical situation will be in 2022.
We are very optimistic that, for the reasons that Steven has outlined and I referred to earlier, that we will be all moving to more enjoy the Australian way. But I think it's also true to say that the online facility has, for management of businesses and for the holding of AGMs, worked remarkably well in circumstances that none of us would have expected. So thank you for your question. To the maximum extent possible, I would like to think that opportunities in the future will involve face-to-face question and answers. Mimi, are there any further questions?
Thank you, Chairman. Our next question is from Harriet Kater. Ms. Kater asks, "How is Coles using its significant buying power to pressure Tasmanian salmon farmers to address the highly concerning environmental and biodiversity impacts of their businesses?"
Thank you very much, Ms. Kater, for your question. I am familiar, and I'm sure many of us are, with the recent focus regarding Tasmanian salmon. Salmon is obviously a very important part of our offering. I think we sell something like AUD 5 million of salmon a week, and much of that salmon comes from three large operators in Tasmania. The issue that we have been working with our suppliers and with the Tasmanian Government and with the appropriately rigorous approval bodies who certify the way in which all elements of the farming take place have, I think, led to a much sharper focus in the recent past.
I see pleasingly that the Tasmanian Government is preparing a 10-year plan, which we support, in terms of making sure that all elements of the farming of salmon in Tasmania meet the standards that I referred to earlier because ethical sourcing goes across every element of our business, and this is another important area.
I can assure you that we are more than alert to the sensitivity around the issue, and we are working with the RSPCA, with the government, with the suppliers, and with those organisations who are responsible for certification to make sure that the standards we expect and you expect are being met. Mimi, are there any further questions?
Thank you, Chairman. Yes, our next question is from Mazira Pty Ltd, who asks, "Logistical issues seem to be front of mind at the moment. What are Coles' major issues, and will they have a material effect on 2022 profits?"
Well, thank you very much for your question. As I mentioned in my opening remarks, it has been remarkable the way in which all of the participants in our supply chain have come together to address issues which have occurred often without much notice and have required immediate responses. Pleasingly, I think there's been a number of positive steps.
In conjunction with the Commonwealth Government, we've had the Supermarkets Task Force, which has been permitted to come together in order that industry participants could share the opportunity to overcome some of the logistical issues that have faced the industry.
I think that has worked effectively, and I acknowledge and appreciate that in those jurisdictions where there are restrictions on what the time periods are that our retail operations can conduct business have been made more flexible on some occasions in order to allow truck deliveries to occur when product was available. But collectively, I think it's been remarkable that we've been able to overcome product shortages, a lot of publicity recently about pallet shortages, working closely with the principal transport operators to make sure that product has come through our supply chain.
And at the same time, we've been able to preserve the safety of our team members. And I think that safety issue, particularly when you think about the concentration of business coming through our distribution centers, is really paramount.
We've put in place all sorts of special arrangements in order to protect team members, operating team members in small bubbles so that one group of people didn't mix with another group of people, making sure that we had all of the safety standards that we could possibly have on site. But despite the challenges, I think we at Coles, with all of our partners and through the support of government and the understanding and working relationships with health authorities, we have been able to address almost all of the issues as they have arisen. Mimi, are there any further questions?
Chairman, we have multiple questions from shareholder Ms. Athena Pasoulis. Firstly, she asks, "Is Coles planning to ban meat from its stores?" She says, "I hope not. It would be deleterious to most of the population's health." Secondly, "Not all of the items that Coles is claiming to be part of sustainability are thus. For example, those that are related to CO2 emissions are to do with ideology to allow China and India to gain at our expense. CO2 emission reduction is very different from efficient packaging and movement of boxes."
Thank you very much, Ms. Pasoulis, for your question. The first one I can absolutely confidently answer. Meat is a really important part of our offering at our supermarkets. We think we present some of the highest quality, most nutritious meat that we can to all of our customers, and we're very, very committed to that being a strong part of our offering going forward. There is no prospect of meat being withdrawn from sale at Coles Supermarkets.
In relation to the issues about sustainability, I think I understand that different people have different views about the importance of different elements of the sustainability agenda. But what's important for us is we are working in a whole community where we are very alert to what are the important issues of our customers as a whole and of all of our stakeholders. We believe that it is correct to support their concerns and the concerns which we've seen evidenced worldwide around what we need to do in order to ensure that our long-term future is sustainable.
And there is much commentary, and I know there are particular points of view that may differ from ours, but we believe ours are correct. We believe ours reflect the interests of our stakeholders. As I said earlier, all of the metrics that we receive from our customers, team members, and suppliers are very much in that direction. So I think we feel it is good business sense to pursue those aspects in the way that I have earlier mentioned. Mimi, are there any further questions?
Shareholder Harriet Kater has another question, and that is, "What steps is Coles taking to identify and address any deforestation, including land clearing, that is occurring in its supply chain?"
Thanks again for another question, Ms. Kater. This is obviously an important issue, and we're working with the Australian Meat and Livestock Corporation in terms of looking at the ways in which our supply chain of meat is protected, but at the same time is done so in a way which is going to be consistent with the long-term biodiversity needs of our community.
We refer specifically to a number of aspects of this in our sustainability report, and I would encourage you to review those. If you have any particular questions, there will be a group of people who would be only too delighted to provide some more specific detail separately outside the annual general meeting. Mimi, are there any further questions?
We have a question from Soma Pty Ltd, who asks, "I have noticed that the Coles convenience stores and service stations have removed condom vending machines from the toilets in their sites. In view of the obvious public health benefits of these machines, I find it a backward step by the company. My research on this topic tells me that it is a low or no-cost option for Coles.
On the other hand, it may also offer only petty cash-type revenue, but the health and well-being of your customers is a publicly stated aim of Coles today. Is there a chance that this valuable service might be reoffered?"
Well, thank you for the question. It's a little bit outside my area of competence, but what I am aware of is this: the vending machines to which you refer have, in fact, I think, not ever been inside any of our Coles Express stores, but I think they may well have been inside the bathroom facilities attached to our stores. As it transpires, we Coles do not operate the bathroom facilities. And so the issue, I think, is one which is a little bit outside our capacity to participate in addressing the issue you raise.
But let me say that I don't want any misunderstanding about the importance of our commitment to health and well-being, and we are very focused upon that across the whole of our portfolio. And whether it's taking salt and sugar out of product where we have the ability through Coles Brand to do so, we are very focused on increasing the opportunities for our customers to live happier and healthier lives. Are there any further questions, Mimi?
Yes, Chairman. Mazira Pty Ltd has come back with another question saying, "Thank you for your comments on logistics, but with due respect, you did not answer the previous question. That is, will it have a material effect on 2022 profits?"
Well, first of all, let me just say we don't make profit forecasts at Coles. What we do is we report in terms of how we've been operating and where we see trends that are relevant to inform shareholders and the market more broadly. We report on those either through a quarterly sales announcement or a half-yearly results announcement, or in the event of something very abnormal occurring, we advise in relation to a specific issue. As you appreciate, we believe we're keeping the market well informed in terms of our mode of operation.
Steven has, I think, given you a good sense of the dynamism that is within the business at the present time, and I don't think there is anything that I could positively or negatively say in relation to the specific matter that you have raised. Mimi, are there any further questions?
Yes, Chairman. We have another question. This question is from Mr. Gary Paul Jackel and Mrs. Joyce Jackel. The question is, "What is the Coles board policy in dealing with activist shareholders whose main interest seems to be to push their personal activist ideologies rather than focus on the actual business of the company?"
Well, thank you for that question. I need to be careful what I say here because I don't want to change our good fortune. But the issue of activists is something which we have seen in other companies around the world. And I think what we have done at Coles is to be just very clear in terms of every element of what we're doing, to be transparent about what we're doing, and to be very clear on our commitments as to how we operate. To the extent that any shareholder comes forward with proposals that have merit, we will review them, and we will consider how best to respond to them.
But I think it's important that amongst our 450,000 shareholders, it is well recognized what our strategy is, how we're performing against that strategy. And I think we will continue to be marked in terms of how we manage ourselves against that strategy day by day, quarter by quarter, year by year. And in the event that activist shareholder was to take a role in Coles, we would address that at the time. Mimi, are there any further questions?
Chairman, we're just checking whether there are any more questions or comments on this item of business. Chairman, the next question comes from Mr. James Honan. He asks, "The Coles Group COVID response has been great. Safety has been front of mind. Has there been a change in the estimated staff turnover to the mandatory vaccines program since its inception? Has there been any increase? I'm asking in regards to any future anticipated increase in payments to suppliers and employees in the cash flow, or is this believed to be of little relevance?"
Thanks, Mr. Honan, for your question. As Steven stated in his comments, across the really hotspot areas of New South Wales, Victoria, and ACT, we've had something like more than 94% of our team members have had their first shot, and we are working very actively with all of our team members to make sure that they understand the importance of vaccination to protect them, their families, and their colleagues. So far, I think we've been able to have very constructive discussions.
We certainly want to retain all of our team members to the maximum extent practical. If there were ultimately some person who felt they wanted to pursue in a different direction, we would understand that. But our aim is to retain and assist all of our team members to be as safe as possible.
I don't think there's any significant issue arising in terms of the cost of our business associated around the issue of retention in the context of vaccination, other than to note all people are very, very highly regarded. And at this time of year, we are very, very busy making sure that we've got enough people in order to make sure that customers can fill up their trolleys when they come into our supermarkets over the next period leading into the festive period. Mimi, are there any further questions?
Chairman, we have another comment from Ms. Athena Pasoulis, and she says, "I encourage Coles to continue the good job that has been done to date in filling the shops with healthy foods, low sugar, white carbs, etc."
Thank you, Ms. Pasoulis. We will endeavor to meet your expectations.
Mimi, are there any further questions? Chairman, we're just checking again whether there are any more questions or comments on this item of business. Chairman, there is another question. This one is from Mr. Robert Charles Crone, and he asks, "How are deli sales progressing in stores where service delis have been removed?"
I think maybe, Mr. Crone, this is a question which is a little bit too much detail for us to go into at this meeting. Suffice it to say that all of our commitment to ensure that the offering for customers where the service of the deli has changed is such a wonderful array of product that customers are very comfortable, and our response has been very positive in terms of that level of engagement in relation to the matters you've raised. Mimi, are there any further questions?
Chairman, thank you. There are no further questions or comments on this item.
Thank you. As there are no further questions, we'll move on now to item two. Firstly, item 2.1. This relates to the re-election of Abi Cleland as the director of the company. The text of the resolution is shown on the screen, and Abi's details are set out in the notice of meeting. I would now invite Abi to address the meeting.
Thank you, Chairman. And good afternoon, shareholders and guests. As a fellow shareholder in Coles Group, I'm excited about the strategy and the positive progress Coles has been making for its stakeholders since listing. I'm honoured to be standing for re-election to the board of Coles Group today. I take this responsibility very seriously.
My career is a combination of over 20 years in the corporate world, followed by over eight years as a non-executive director. My corporate experience has been in a handful of Australia's top industrial and retail organizations, and my non-executive director career includes Sydney Airport, Orora, and Computershare. I'm passionate about driving profitable growth, digital innovation, sustainability, and adapting business models to take advantage of change. For much of my working life, I've led strategy, M&A, and integration at large corporates globally, as well as smaller entrepreneurial companies.
I value bringing my strategic and commercial skills to the board of Coles. I have deep digital experience, having led digital businesses across a range of companies. These experiences are extremely relevant for meeting our customer and supplier needs in the 21st century. During my career, I've developed operational experience in supply chain and running businesses.
These experiences inform my understanding of the challenges and opportunities management face in a large organization such as Coles. It is important to me that Coles has the ambition to be the most sustainable supermarket. Huge progress has been made over the last few years at Coles, but there is still a lot of opportunity, which we will continue to help drive at the board. I'm committed to bringing my skills and experience to the Coles board and management. I'd be honoured to receive your support to serve as a director.
Thank you very much, Abi, and I should say that Abi remained seated in order to be consistent with the COVID protocols of not having more than one person speak from the same microphone.
The board, other than Abi, unanimously recommends the re-election of Abi Cleland, noting that Abi brings significant public company and strategic experience, as well as a considerable engagement in the fast-developing online business, and makes a very important contribution to the board and to Coles. I would now like to invite any questions that you may have on this item of business. Mimi, are there any questions?
Thank you, Chairman. There are no questions or comments on this item.
Thank you, Mimi. If there are no questions, we have now finalized discussion of this item. The details of the proxies and direct votes received in relation to this item are displayed on the screen. Please now enter your votes for item 2.1 if you have not already done so.
I now turn to item 2.2 on today's agenda, which relates to the re-election of Richard Freudenstein as the director of the company. The text of the resolution is shown on the screen. Richard's details are set out in the notice of meeting. I now invite Richard, who will also address the meeting from the table.
Thank you, Chairman, and good afternoon, everyone. I've had the privilege to serve on the Coles board for the past three years since the demerger from Wesfarmers. During that time, I have met and worked with many of the wonderful team members of Coles and observed firsthand their commitment to looking after our customers. It's been amazing to see how Coles has worked through the challenging COVID times to keep providing a first-class service to all our valued customers, both in-store and through home delivery. Their hard work and commitment is inspiring.
I believe I have a range of skills that enable me to add value on the board of Coles. In particular, I have worked as a CEO of both a large customer-facing subscription business and a CEO of a fast-growing digital business. I'm currently a board member on two highly innovative ASX-listed digital businesses, which has provided me with insights into the digital future, as well as a good understanding of corporate governance. And I have international experience, having worked in the U.K. for many years and served on a number of boards in Asia.
At Coles, I also chair the People and Culture Committee. I'm very excited about the Coles' purpose to sustainably feed all Australians to help them lead happier, healthier lives and our vision to become Australia's most trusted retailer and grow long-term shareholder value. I would be honored to be re-elected to continue to serve the interests of Coles shareholders. Thank you.
Thank you, Richard. The board, other than Richard, unanimously recommends the re-election of Richard Freudenstein, noting that Richard makes a significant contribution to the board with substantial experience in large companies with technology and consumer-facing businesses, as well as in his role as chairman of the People and Culture Committee. I would now like to invite any questions that you may have on this item of business. Mimi, are there any questions?
Thank you, Chairman. The first question comes from Stuart Byrne, representing the Australian Shareholders' Association. He says, "Chairman, we recognize the value that Mr. Freudenstein brings to the board of Coles with his significant media background. However, we have significant concerns about his current workload, chairing Appen, a director of REA, deputy chancellor of the University of Sydney on the board of Afiniti, and most recently as the interim chairman of Cricket Australia.
Can the chair advise shareholders that Mr. Freudenstein will have sufficient time to commit to Coles Group, considering the current pressures being placed on board members?"
Thank you, Mr. Byrne, and thank you for the continuing support and interest of the Australian Shareholders' Association. The issue you raise about having the right person with the right skills on the board of Coles is so important. And we're very fortunate at Coles to have a group of directors who've got very diverse backgrounds that, as I said in my opening address, have given without hesitation to the group over this last very demanding year. Richard exemplifies that.
Richard is always available, both in his capacity as a director, inquiring, working with management, and in his particular role as Chairman of the People and Culture Committee. In my experience, there's never been any occasion where Richard has not been available to participate and positively contribute to how Coles as a company, the board, a committee, a subgroup with management may be considering and discussing a relevant issue.
The question about other commitments is a proper one to bring forward. But I think our experience is that as far as other listed companies, there are two companies, only one of which, as it transpires, has a financial year which ends in June and the other has a financial year which ends in December. That of itself tends to mean that there's a slightly different rhythm to how those companies operate.
As far as the not-for-profit activities are concerned, Richard manages to handle those seamlessly, in my experience. And your reference to his recent acting chairmanship of one of those organizations is very much that. It's only acting in an interim sense, pending further developments within that organization. So all I can say is I'm absolutely delighted to have Richard Freudenstein as the director of Coles, and his commitment and his contribution is really material. Mimi, are there any further questions?
Chairman, there are no further questions or comments on this item.
Thank you. Then, if there are no further questions, we have now finalised discussion on this item. The details of the proxies and direct votes received in relation to this item are displayed on the screen. Please now enter your votes for item 2.2 if you have not already done so.
I now turn to item three, which is an advisory vote on the 2021 remuneration report. The remuneration report can be found on pages 57-74 of the 2021 annual report. I would now like to invite Richard Freudenstein, as chairman of our People and Culture Committee, to speak to the meeting on this matter.
Thank you, James. As we've already heard, the 2021 financial year saw considerable progress in executing our strategy amid the backdrop of ongoing lockdowns, border closures, restrictions, and economic uncertainty. This translated into strong performance against both the financial and non-financial metrics that are part of our remuneration framework.
Coles' executive team is rewarded through the payment of benchmarked fixed compensation, a short-term incentive based 60% on financial measures and 40% on strategic milestones, and a long-term incentive dependent on performance over a three-year period by reference to our relative total shareholder return and our cumulative return on capital. This structure is designed to ensure remuneration of the group is market competitive, performance-based, creates long-term value for shareholders, and is fit for purpose.
The board maintains discretion across all remuneration aspects to ensure that outcomes are appropriate in the context of our performance and the expectations of our customers, team members, shareholders, and the community. For the financial year 2021, the board considered the STI outcomes in the context of the achievements and challenges of the year that unfolded.
The board chose to exercise discretion to normalize the outcome against the group's sales metric in consideration of the impacts of COVID-19 in driving increased consumer demand. Accordingly, performance against the group's sales metric was calculated on an underlying basis, which resulted in this metric being assessed as just above target rather than meeting full stretch performance. Due to the strong financial discipline of management, COVID-19 cost impacts were minimized, and Group EBIT achieved stretched performance on both an actual and an underlying basis.
Therefore, the board did not make any adjustments on the calculated STI outcomes with respect to the Group EBIT metric. This resulted in STI outcomes for the executive KMP being between 85.3% and 91.9% of the maximum STI opportunity.
The board believes the final STI outcomes reflect significant achievements delivered by management against the commitments made to shareholders and the unprecedented operational impacts of COVID-19, noting that 50% of the Managing Director and CEO's STI outcome will be deferred into equity for two years, and 25% of the STI for other key management personnel will be deferred into equity for one year. In addition to STI outcomes, the transitional LTI award granted to the executive KMP in financial year 2019 was tested at the end of the financial year 2021.
The FY19 LTI was a one-off award granted at the time of de-merger. This award had two performance metrics: cumulative EBIT with a return on capital gateway and relative total shareholder return. In assessing performance against each of these metrics, the board determined that 97.6% of the FY19 LTI award wou ld vest.
I would also like to take this opportunity to speak to resolutions four and five relating to the allocation of equity to our Managing Director and Chief Executive Officer, Steven Cain. Resolution four relates to the approval sought to allocate 64,514 shares to Mr. Cain, pursuant to the 50% deferral into equity of the short-term incentive earned in the 2021 financial year. As previously noted, these shares will be subject to a two-year deferral. Resolution five relates to the approval sought to allocate Mr. Cain 225,976 performance rights, being equivalent to 175% of Mr. Cain's total fixed compensation.
The terms of this long-term incentive grant are set out in the notice of meeting, and importantly, they are entirely performance-based. 50% of the performance rights are subject to our relative total shareholder return measured over the three-year period, and 50% are dependent on the company meeting a cumulative return on capital measurement as set by the board in line with the execution of our strategy.
This long-term incentive structure has been set by the board in recognition of the importance of aligning remuneration outcomes with long-term returns to shareholders in accordance with our vision of becoming the most trusted retailer in Australia and growing long-term shareholder value. I'll now hand back to the chair.
Thank you, Richard. And I think shareholders will appreciate the detail and some of the complexities that lie behind the setting of remuneration in a business as large and as complex as Coles. Turning to item three on today's notice of meeting, the remuneration report. The text of the resolution is shown on the screen.
While the vote on this item of business is advisory only, the board takes account of the discussion and voting when reviewing our remuneration practices and policies. The board recommends that shareholders vote in favor of the adoption of the remuneration report. I now invite any questions that you may have on the remuneration report. Mimi, are there any questions?
Chairman, we have two questions from Stuart Byrne representing the Australian Shareholders' Association. I will read both of his questions now. The first question is, "Chairman, we have supported this resolution in recent years as we recognize the positive steps that have been taken by the Coles board. However, from a shareholder's perspective, it is still rather difficult to calculate some financial metrics, for example, the total remuneration of the CEO, especially with regards to the vesting of the LTI.
If issues such as these could be addressed, it would make the remuneration report much more transparent." The second question is, "Chairman, currently the preferred ASA policy is that the LTI component of remuneration vests in a minimum of four years, but preferably five or more years. We believe that this timeframe ensures that directors have a long-term commitment to the company.
Can you please advise why Coles Group uses a shorter timeframe of three years for vesting of performance rights? A longer timeframe would align the performance of the CEO with the longer-term needs of the shareholder."
Well, thank you again, Mr. Byrne, for your two questions on this report. I think as Richard went through the discussion of the detail of how the remuneration report is made up, how we think about what is it that's going to be best for the company to allow us to be able to attract, retain, and motivate the interests of all of our senior executive team to achieve our long-term vision of trust and shareholder value.
So in terms of your first question, which is relating to the way in which we try to disclose to the best of our ability the different elements of total fixed cost, short-term incentive, and long-term incentive, there is one somewhat awkward accounting requirement that in relation to the long-term incentive, because it does vest over a long period of time and is entirely subject to performance hurdles, we have to come up with a basis which is a mathematical basis of assessing the value of the long-term incentive that is somewhat connected with but more difficult to assess when reading the annual report in terms of the true value of that long-term incentive.
The long-term incentive, as you point out in your second question, is something which is measured over a three-year period. And so the time at which that benefit is either received in whole or in part or not at all will be at the end of that long-term incentive period. And that makes it somewhat more complicated looking at year by year what are the different component parts that make up the total remuneration of our senior executive team.
We will take on board your comments about is there a way in which we can enhance disclosure to make it simpler and more useful for our shareholders to be able to see how we've gone through the process of aligning all elements of remuneration in the best interest of our shareholders and the achievement of our strategy. So we'll continue to reflect upon are there areas of improvement.
In relation to your second point, if my memory serves me correctly, Mr. Byrne, you may have raised this with me on a previous occasion at an annual general meeting and maybe even on other occasions, and I acknowledge what the position that you on behalf of the Australian Shareholders' Association are expressing. We are in a marketplace where it's really important that what we deliver to our shareholders is the best management team to execute and deliver upon our strategy.
In doing so, we need to make sure that all elements of how we behave, engage, remunerate our senior team are all going to be focused on that end. When I look across the competitive environment in which we operate and the nature of our industry, our current view is that the three-year period for the vesting or assessment of vesting of the long-term incentive is appropriate.
But as I said in relation to your former question, if there are issues that come to our attention where we think we should revisit or review that because of changes in market circumstances or other, then we will do so. So thank you for bringing it to our attention. It won't go off our radar, but at the present time, we believe the structure is the best structure we can put in place for the shareholders of Coles Group Limited. Mimi, are there any further questions?
Chairman, we're just checking whether there are any more questions or comments on this item of business. And it seems that there is a question. This one is from Mazira Pty Ltd, who says, "I agree, Mr. Chairman, that the remuneration these days is just complicated. 10, 20, 30 pages of complicated information. What happened to the idea that if you cannot write it down in one page, it's not worth doing? Please take a lead and keep it simple."
Well, thank you very much for your observation. I certainly would like to keep this as short and as clear as in any way possible while at the same time meeting our obligations to shareholders and to regulators. We'll take your comment as an encouragement to continue to do so, and we'll see how we progress in relation to next year's annual general meeting. Are there any further questions, Mimi?
Chairman, there are no further questions or comments on this item.
Well, thank you very much. If there are no further questions, we have now finalized discussion on this item. The details of proxies and direct votes received in relation to this item are now displayed on the screen.
Please enter your votes for item three if you have not already done so. I now turn to item four, which is the approval of the grant of short-term incentive shares to our Managing Director and Chief Executive Officer, Steven Cain, as part of his short-term incentive award for the 2021 financial year. The text of the resolution is shown on the screen. Details of the proposed grant are set out in the explanatory notes to the notice of meeting.
As outlined, the purpose of Steven Cain's short-term incentive is to provide increased focus on and reward for performance against those areas that most significantly drive the delivery of the company's strategic initiatives. The board, other than Steven, considers the grant of short-term incentive shares to be appropriate in the interest of shareholders and unanimously recommends that shareholders vote in favor of item four.
I now invite any questions that you may have on the approval of Steven Cain's short-term incentive grant. Mimi, are there any questions?
Thank you, Chairman. Yes, our first question comes from Stuart Byrne, representing the Australian Shareholders' Association. And he says, "Chairman, many of the gains made by the Coles Group during the pandemic have been outside its control. We note that the CEO has been rewarded with the payment of the STI at the 102% level rather than the target of 80%. Can you please outline the new initiatives and outperformance that justify payment at this higher level?"
Mr. Byrne, thank you. And I should say Mr. Byrne and the Australian Shareholders' Association were kind enough to forward questions in advance of this annual general meeting.
And that has given us the opportunity for Richard, in his capacity as Chairman of the People and Culture Committee, to seek to provide further details in terms of exactly how we thought about the performance and the award in this year. And as you would have heard Richard refer to, it was a year where, as far as the financial metrics, which represent 60% of the total performance, the financial metrics were assessed by the Board very closely, looking at what issues were there as a result of trading success and what issues were there as a result of some factors driven in and around COVID-19.
And as Richard has outlined, in relation to earnings, in fact, the costs were controlled and the earnings were able to grow in a way that the stretch target on earnings was met.
In relation to sales, as Richard has run through, we adjusted the sales downwards. And the reason why, Mr. Cain, therefore, against the maximum opportunity being 120% of his total fixed cost, ended up at 102 or 102.3% of his total fixed cost is because of that, in part, because of that adjustment. So I hope, Mr. Byrne, you can see that we exercised discretion where we felt it was relevant in relation to sales. And I'd just like to say that we've talked about this being a challenging year for the company, but this has been a really challenging year for management.
And we as shareholders can all be extremely grateful to the leadership, dedication, and focus that Steven Cain has brought to Coles. Mimi, are there any further questions?
Chairman, thank you. There are no further questions or comments on this item.
Thank you then. If we have no further questions, we have now finalized discussion on this item. The details of the proxies and direct votes received in relation to this item are now displayed on the screen. Please enter your votes on item four if you have not already done so. I now turn to item five, which is the approval of the grant of performance rights to Steven Cain as part of his long-term incentive award for the 2022 financial year. The text of the resolution is shown on the screen. Details of the proposed grant are set out in the explanatory notes to the notice of meeting.
As outlined, the purpose of Steven Cain's long-term incentive is to ensure that his interests are aligned with the long-term interests of shareholders by providing him the opportunity to be awarded an equity interest in Coles, subject to the achievement of the performance targets as set out in the notice of meeting. The board, other than Steven, considers the grant of performance rights to be appropriate in the interest of shareholders and unanimously recommends that shareholders vote in favor of item five.
I now invite any questions that you may have on the approval of Steven Cain's long-term incentive grant. Mimi, are there any questions ?
Thank you, Chairman. There are no questions or comments on this item.
Thank you. If there are no questions, we have now finalized discussion on this item.
The details of the proxies and direct votes received in relation to this item are now displayed on the screen. Please enter your votes on item five if you have not already done so. I now turn to item six, which is the renewal of proportional takeover provisions in the Constitution. The text of the resolution is shown on the screen. The proportional takeover provisions were adopted with effect from 21 November 2018 when Coles was listed on the Australian Securities Exchange.
Under the Corporations Act, these provisions must be renewed every three years or they will cease to have effect. The proportional takeover provisions are intended to allow shareholders to vote on any takeover bids received by Coles where an offer is made to each shareholder to buy a proportion of that shareholder's shares.
Unless a majority of shareholders support such a bid under the company's constitution, the transfer of shares would not be able to proceed. These provisions are intended to reduce the risk of effective control of Coles being passed without shareholders having the opportunity to sell all of their shares to the bidder, as well as the risk of the bidder being able to acquire control of Coles without paying an adequate premium to our shareholders.
The proposed provisions are identical to the existing provisions in the Constitution. And on balance, the board considers that the potential advantages of these provisions for shareholders outweigh the potential disadvantages. This is a special resolution, which means that in order for it to pass, at least 75% of the votes cast must be in favour.
Details of the proposed renewal of the proportional takeover provisions in the Constitution are set out in the explanatory notes to the notice of meeting, and a copy of Coles's Constitution is available on our website. The board unanimously recommends that shareholders vote in favor of item six. I now invite any questions that you may have on the renewal of proportional takeover provisions in the Constitution. Mimi, are there any questions?
Thank you, Chairman. There are no questions or comments on this item.
Thank you. If there are no questions, we have now finalized discussion on this item. Details of the proxies and direct votes received in relation to this item are displayed on the screen. Please now enter your votes on item six if you have not already done so.
Before we close the meeting, I would like to pause to give shareholders a final opportunity to enter their votes. Mimi, while we wait, can I check if there were any additional questions on matters not already dealt with?
Thank you, Chairman. No, there are no additional questions or comments.
Thank you. There being no further questions, I confirm we have now finalized our discussion. That concludes the formal business of this meeting. If you have not already done so, please ensure that you have submitted your vote for each resolution through the online platform. I will now declare the poll closed. The final results of the poll will be advised later today to the ASX and will be published on our website as soon as possible. That concludes our business today.
Thank you very much for your attendance today at Coles Group's virtual annual general meeting and for your support of Coles. I wish each of you well as we head into the festive season, which we trust will bring a great deal of cheer as we end this tumultuous year. I now declare the meeting closed.