Annual Report 2017 Metcash Limited Annual Report 2017 ABN 32 112 073 480
Successful Independents Metcash is Australia’s About us...... 2 leading wholesaler and Chairman’s Report...... 4 distributor, supplying and supporting more than 10,000* CEO’s Report...... 6 Independent Retailers across Financial Highlights...... 10 the food, grocery, liquor and Logistics...... 12 hardware sectors. Food...... 14 Liquor...... 16 Our focus is to support Hardware...... 18 Successful Independents to CSR...... 20 become the ‘Best Store in Our people...... 24 Town’, by providing our network Financial Report...... 26 of strong retail brands with Corporate Information...... 105 merchandising, operational and marketing support. * Number of Independent Retail customers
1 #About us
About us
Our purpose Successful independents
Our vision Our distribution network
Best store in every Business partner of Passionate Thriving town choice for suppliers about independents communities, giving Our national distribution network delivers products and independents shoppers choice to more than 10,000 retail premises and a further ~95,000 wholesale customers across the food, – Differentiated – Australia’s – Unlocking the – Championing local grocery, liquor and hardware markets. offer & service leading portfolio potential of entrepreneurs Our Independent Retail and wholesale customers are – Celebrating of independent our people – Pipeline of retail brands supported by distribution centres in each of the major Individuality – Inspiring future aspiring new cities, as well as a number of smaller distribution – Loved by locals – World class leaders business owners centres in regional areas. wholesaler – Sustainable
Our values Integrity is our foundation Our retail footprint
No of Retail Premises No of Wholesale Customers – Supporting our customers and suppliers Supermarkets 1,683 >1,400 – Our people are empowered and accountable Convenience 18 >90,000 – Adding value in our community Hardware 740 >500 Liquor 7,9851 >3,800
1 Includes 5,468 Cellarbrations on-premise customers Our model Our markets Our retail brands Independence is worth fighting for!
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u r 2 S 3 #Chairman’s Report
Our strategy continues to focus on ensuring that independent family-owned retail businesses can thrive across the markets we serve.
Balance sheet strength We also have a strong focus on organisational Rob Murray culture and employee engagement which is Chairman The financial highlight for the year was our helping underpin our performance. We have strong cash performance. This, together with a well established program in this area, with equity raised to partly fund the HTH acquisition, a high level of employee participation, which were the key drivers of net debt reducing a importantly includes the Board and senior further $194.7 million to $80.8 million. leadership team. Your Board continues to be Strengthening our financial position has been actively involved in this area and was rated a strategic priority for a number of years, and highly by both management and external Chairman’s Report it is pleasing to report that we have reduced stakeholders in the engagement survey. net debt by ~$690 million since FY14. This is a Earlier this month we announced that Jeff significant achievement. Adams will succeed Ian Morrice as Group Chief We now have a very strong financial position, Executive, following earlier advice from Ian that am pleased to present Earnings performance and this underpinned the Board’s decision he intended to retire from the role in 2018. Ian has held this position since June 2013, Underlying profit after tax for the year increased to bring forward the recommencement of Metcash’s Annual Report and has overseen the repositioning of the 9.3% over the prior year to $194.8 million. dividends with the declaration of a 4.5 cent per company through a consumer focus, a strong for 2017, a year of This excludes $22.9 million of costs related to share fully franked final dividend for FY17. The I Board has also decided to target a dividend balance sheet and a very capable management the acquisition and integration of the Home team to take the business forward. He also achievement, change and Timber & Hardware Group (HTH), as well as payout ratio of 60% commencing in FY18, with led transformation initiatives that have seen restructuring costs related to our Working interim and final dividends to be weighted challenge for the company. many of our Independent Retail customers Smarter program aimed at simplifying the way similarly to prior practice. improve their competitive position. I would like During the year we faced some of the most we do business. Underlying earnings per share to sincerely thank Ian for his significant effort difficult external conditions in our history, was 20.3 cents, and 17.9 cents including the Remuneration and achievements. particularly in Supermarkets where the $22.9 million of costs mentioned above. We have continued to refine our remuneration continuation of intense competition led to framework to deliver market-aligned Jeff has broad international experience in the The success of our Working Smarter program price deflation at very high levels. Our ability remuneration practices, including taking into retail and wholesale industries and is ideally in the year reflects considerable effort and to deliver some pleasing financial outcomes consideration concerns raised at last year’s suited to lead the company’s continued focus dedication from our people. The importance of and continue to successfully execute our Annual General Meeting. These initiatives on supporting the success of Independent this work in the context of the current external strategic initiatives in these conditions is, include a reduction in the weighting of the Retailers. We look forward to Jeff joining us in environment cannot be underestimated. I believe, admirable. Short Term Incentive component in total September this year. remuneration, as well as the inclusion of Our strategy continues to focus on ensuring Acquisition of HTH On behalf of the Board, I would like to thank more objective performance measures that independent family-owned retail our people, the leadership team and all of our The acquisition of HTH is very exciting for through moving to a balanced scorecard for businesses can thrive across the markets partner suppliers and retailers for their ongoing us. Not only is it a quality national hardware all executives. we serve. Key to this is supporting our retail support as we work to ensure a sustainable and customers to be the ‘Best Store in Town’ with a operation, it is also complementary to our Mitre 10 business. The increased scale it Remuneration outcomes for the year include healthy Independent Retailer network. localised, differentiated offer that is tailored to only one member of our Key Management provides through the creation of Australia’s I would also like to recognise the support their local community. Personnel (KMP) receiving an increase in fixed second largest hardware player, enables the and contribution of my fellow Directors. remuneration, and total bonuses paid to KMP We made significant progress in the year with expanded network to operate more efficiently Together, we have formed a hardworking and in respect of FY17 being 44% lower than for the our ‘Best Store in Town’ initiatives, including a and competitively. cohesive team. further 100 stores completing Supermarkets’ prior year. Fees for Non-Executive Directors Diamond Store Accelerator program, and an While the acquisition creates new attractive were left at a consistent level for the fifth additional 10 stores completing the Sapphire growth opportunities we will look to pursue, our consecutive year. Store Refurbishment program in Hardware. immediate focus is to ensure the integration of the two businesses continues to be smooth Further remuneration details can be found in our These have led to some truly remarkable stores remuneration report commencing on page 37. that are receiving strong customer support. and deliver on our expectations. We have a very capable team that is doing a great job, and I am Going forward, while there is still much to do, Rob Murray We have provided some more information on confident this will be achieved. we are well positioned to weather the current Chairman our ‘Best Store in Town’ initiatives, together The acquisition is also important for the difficult market conditions and pursue our with some case studies profiling how the stores growth opportunities and cost efficiencies. We are benefiting from the transformations on diversification it provides to our Group earnings, which is in line with our strategic focus on have a strong financial foundation, our strategic pages 14 to 19 of this Annual Report. I hope initiatives are delivering and there is strong you find this informative. ensuring the financial position of the company remains strong and resilient. leadership through your Board and senior leadership team.
4 5 #CEO’s Report
We, and our Independent Retailers, are very The year was also a very important one in our passionate about driving growth for their history, with the acquisition of the HTH Group. businesses, and I am encouraged to see the Combining HTH with our Mitre 10 network network continuing to invest in both new stores has created the second largest Hardware and upgrades at an increasing rate despite the business in Australia, with sales of more than difficult market conditions. $2 billion per annum. This increased scale has created significant synergy opportunities, In Supermarkets, there were 32 new store and enables us to improve our competitive openings in the year, and a further 100 stores position and deliver better outcomes for both completed the Diamond Store Accelerator (DSA) our independent Hardware retailers, and their Ian Morrice refurbishment program. This brings total DSA customers. This acquisition will also be strongly Chief Executive Officer completed stores to ~250, with another ~100 earnings accretive for shareholders. expected in FY18. The DSA refurbished stores are delivering impressive sales growth of well Operating performance over 10%, on average. The Group generated sales revenue for the year In Liquor, retailers have continued investing of $14.12 billion, an increase of 5.4% on the in the network, with 95 stores completing prior year, which includes sales from HTH since CEO’s Report the ‘refresh’ program and a further 130 cool its acquisition on 2 October, as well as sales rooms upgraded, both aimed at improving the from a 53rd trading week in FY17. shopper experience. Group EBIT increased 7.7% to $296.7 million, From a financial perspective, the Group he last financial year In Hardware, our Sapphire Store Refurbishment reflecting continued earnings growth in the delivered growth in underlying earnings and upgrades and Core Ranging programs are Liquor and Hardware pillars. was a very challenging and strong cash inflows despite the market both delivering strong sales growth. A further challenges, both creditable outcomes. 10 stores were upgraded to Sapphire standards In Food, sales increased 0.6% to $9.18 billion. one in many aspects, Excluding the 53rd week, sales were 1.3% lower Underlying profit after tax increased 9.3% to during the year, in line with our target. This T than the prior year. including highly competitive $194.8 million, reflecting continued earnings brings the total completed so far to 22. Typically market conditions leading to growth in Liquor, and in Hardware which these Sapphire upgrades deliver greater than Supermarkets sales increased 1.3% to benefited from the successful acquisition of 15% uplift in sales per store. $7.65 billion, and were 0.6% lower excluding increased price deflation, and Home Timber & Hardware (HTH). Our Food pillar The challenging market and economic the 53rd trading week as the uplift from our delivered earnings in line with the prior year, conditions have reinforced just how important it strategic initiatives and new store openings market disruption from the despite facing price and new space competition is that we deliver on our targeted savings from were more than offset by significant price closure of Masters’ hardware at levels never before seen in the sector. the Working Smarter program. Simplifying the deflation, the cycling of sold stores and store closures, increased competitor promotional Supporting Independent Retailers to be the way we operate, and at the same time reducing stores. In this context, activity, competitor entry into South Australia ‘Best Store in Town’ is central to our strategic our costs, is crucial to ensure we remain and Western Australia, and weak economic focus, and the past year saw significant competitive and meet the future needs of our there were many facets conditions in Western Australia. progress on our retailer-centred initiatives. customers, retailers and suppliers. This year we of our performance that exceeded our savings target of $35 million, and Convenience sales declined 2.7% to were pleasing. I am very appreciative of the significant effort, $1.53 billion, and were 4.5% down excluding understanding and resilience of our people as the 53rd trading week due to the impact of we continue to simplify and change the way lower volumes in both C-Store Distribution we operate. and Campbells. Importantly, our cash performance for the year Food EBIT was in line with the prior year at was very strong with operating cash flow of $180.0 million. In Supermarkets, our Working $304.6 million, an increase of $138.8 million Smarter savings enabled us to maintain on the prior year. This was a key driver of a margins by offsetting the impact of increased The interests and values of $194.7 million reduction in net debt to $80.8 tobacco sales, which have lower margins. In Mitre 10 and HTH retailers are million. Debt reduction has been a priority for Convenience, significant cost reductions from us in recent years, being a key component of repositioning the business led to an improved closely aligned. Our objective is our response to challenging market conditions. 2H17, with earnings breaking even for the half. This year’s reduction means net debt has now to continue to build successful decreased by ~$690 million since FY14. In Liquor, sales increased 3.5% to $3.33 billion, and were up 1.8% excluding the 53rd trading Independent Retailers and grow The strength of our financial position has week. Our IBA (retail) bannered network a vibrant independent hardware us well placed for future investment in both continued to perform well with further growth and initiatives to drive cost efficiencies, improvement to the quality of stores despite sector, for the long term. and was a key factor in the Board bringing difficult trading conditions. These included forward the recommencement of dividends. intense competition driven mainly by the large I would like to thank shareholders for their retail chains, and weak economic conditions in support in forgoing dividends over the Western Australia. last two years.
6 7 CEO’s Report continued
Our Liquor business’ focus on converting Safety existing wholesale customers to our IBA network included the acquisition of Thirsty Metcash continues to have a strong focus Camel in NSW and Tasmania, and Big Bargain on workplace safety and reducing injury. I am in Tasmania, bringing a combined 79 stores pleased to report that the Lost Time Injury into the network. We also acquired Porters Frequency Rate for the year declined to 10.1 Liquor in the second half which added a for the year, compared with 10.3 in the prior further 21 stores to the IBA retail network. year. This reflects a decrease in the number of LTIs to 90, compared with 94 in the prior year. Liquor EBIT increased 7.9% to $67.0 million There was also a 44% reduction in our High reflecting increased sales volumes, improved Potential Incident measure for the year, which margins from the conversion of wholesale was a good improvement. customers to the IBA network, savings from $194.8m the Working Smarter program, and inclusion of We are determined to continue reducing UNDERLYING PROFIT AFTER TAX the 53rd trading week. our rate of injury and are driving greater automation of processes to reduce the risk In Hardware, sales increased 52.3% to of manual handling. We are also continuing $1.61 billion, and includes seven months of to pursue increased awareness across our sales from HTH. Mitre 10 sales increased 2.9%, operations around the safety of our people. or 1.4% excluding the 53rd week, underpinned by our “shopper led” initiatives. Outlook We are making great headway with our Group earnings for FY18 will cycle the Competitive Pricing program and Digital Data inclusion of the 53rd trading week in FY17. and Insights initiatives, which are improving In Food, we expect a continuation of the Competition remains intense, but by working In Liquor, we expect moderate growth in the competitiveness of our retailer network. significant external headwinds experienced closely with our supplier partners we can the overall Liquor market with the business in FY17. The business will continue to ensure that Independent Retailers are able to Hardware EBIT increased 48% to $48.5 million remaining focused on building and improving progress initiatives to support Australian provide a competitive localised, differentiated reflecting a ~$12 million contribution from the quality of its IBA (retail) bannered network. Independent Retailers to be the ‘Best Store offer that is tailored to their local community, HTH in 2H17, and improved earnings in In Hardware, positive market conditions in Town’. We expect Working Smarter savings enabling them to achieve ‘The Best Store in Mitre 10 due to increased sales volumes and remain. The business continues to focus on to help mitigate the impact of difficult market Town’ for their shoppers. cost efficiencies. conditions including price deflation, cost delivering synergies related to the acquisition I would like to sincerely thank all our people inflation and the necessary investment in Integrating two sizable businesses to of HTH, and these are expected to be at the across the Metcash businesses for their new initiatives. create the Independent Hardware Group upper end of our targeted range of $15 million considerable efforts, resilience and commitment is a significant task. I am pleased to report – $20 million (annualised) by the end of We have good businesses, and very capable, during my time as CEO. It has been a real that we are in line with our plan to complete FY18. FY18 will also include a full year of passionate and enthusiastic people, retailers privilege to lead such a passionate team who the integration by the end of FY18. Our earnings from HTH. and suppliers. We have a strong balance sheet fight for the success of independent family achievements to date are a testament to the and see great opportunities ahead in each of businesses every day. quality and effort of our people, particularly our pillars. I feel very encouraged by what we Finally, thank you to all our retail customers our Hardware team. We have received strong have achieved this year, and positive about for your passion and belief in being the support and goodwill from Independent what can be achieved in the future. Retailers, which is key to the integration. Other ‘Best Store in their Town’, and at the heart key areas such as property rationalisation, Our focus also remains on ensuring we continue of the communities in which you operate. forming an integrated management structure, to be the partner of choice for suppliers The success of independent family-owned and merchandising synergies are also and Independent Retailers, and this is an businesses is core to our purpose of “Successful progressing well. important objective for each of our teams. Our Independents”, and vital to the Australian independent network operates successfully economy and communities. through a very strong interdependency between
Metcash as the wholesaler, our suppliers and Food Liquor Hardware our retailers.
EBIT EBIT EBIT Ian Morrice $180.0m $67.0m $48.5m Chief Executive
8 9 #Financial Highlights $14,121.9m $194.8m
Financial Highlights $296.7m $304.6m 20.3c
Strong financial position
($m) 13 14 15 16 17 13 14 15 16 17 13 14 15 16 17 13 14 15 16 17 13 14 15 16 17 $14.12 billion Sales Revenue EBIT (Underlying) PAT (Underlying) EPS (Underlying) Operating cash flows GROUP SALES REVENUE
20171 2016 2015 2014 2013
$194.8m $304.6m $80.8m Financial Performance UNDERLYING PROFIT AFTER TAX OPERATING CASHFLOW NET DEBT Sales revenue ($m) 14,121.9 13,402.5 13,244.3 13,045.1 12,767.8 Underlying EBIT ($m) 296.7 275.4 297.3 368.4 437.7 Finance costs, net ($m) 25.5 27.0 55.1 57.3 61.7 Underlying profit after tax ($m) 194.8 178.3 173.6 218.4 261.2 Reported profit after tax ($m) 171.9 216.5 (384.2) 169.2 206.0 Operating cash flows ($m) 304.6 165.8 231.7 388.7 299.8 Cash realisation ratio (%) 118% 70% 97% 137% 94%
Financial Position Shareholder equity ($m) 1,637.4 1,369.1 1,156.6 1,594.0 1,624.2 Net debt (hedged) ($m) 80.8 275.5 667.8 766.9 719.8 Gearing ratio (net hedged) (%) 4.7% 16.8% 36.6% 32.5% 30.7% Return on funds employed (%) 18.5% 16.5% 14.4% 15.8% 19.6%
Share Statistics Fully paid ordinary shares 975.6 928.4 928.4 888.3 880.7 Weighted average ordinary shares 958.8 928.4 907.0 882.7 859.7 Underlying earnings per share (cents) 20.3 19.2 19.1 24.7 30.4 Reported earnings per share (cents) 17.9 23.3 (42.4) 19.2 24.0 Dividends declared per share (cents) 4.5 - 6.5 18.5 28.0 Dividend payout ratio (%) 22% - 34% 75% 92%
Other Statistics Number of employees 6,708 5,807 6,398 6,174 5,794 (full-time equivalents)
1 FY17 includes a 53rd week of trading
10 11 #Logistics
Major Distribution Centre Smaller Distribution Centre Logistics
Australia’s leading wholesaler
12 NRL fields can fit into one of our largest distribution centres at Huntingwood, NSW.
etcash is a We also make it more efficient for locations, such as Halls Creek WA, Our world class operations in action suppliers, whether they operate at Coober Pedy SA, Tennant Creek NT, a national or local level, to reach Cobar NSW to name just a few. world class Utilising our logistics flexibility Using our distribution capability Partnering with Community what would otherwise be a very wholesaler diverse and disparate network of World class wholesale to support the community of to be ‘first to market’ with Enterprises Queensland to supply M Independent Retailers. supplying leading distribution Beechworth Coca-Cola No Sugar Thursday Islands Across our people, processes, tools independent retail Widest distribution In early 2016, Beechworth Ritchies Early collaboration between Coca‑Cola Metcash in its supply to remote and systems, Metcash is investing network in Australia IGA was gutted after flames tore and Metcash’s merchandise and communities, services the Islanders brands across to ensure that we continue to be through the building leaving the local logistics teams and Independent Board of Community Enterprises Our Independent Retail and Australia’s leading wholesaler. Key community without a supermarket. To Retailers, enabled Metcash to be first Queensland (CEQ). We provide CEQ Australia within the wholesale customers are supported to our operational excellence is our ensure that residents could continue to market for the launch of Coca-Cola with approximately 320,000 cases by seven large distribution centres investment in automation, with the food, grocery, liquor to have access to a local supermarket, No Sugar in June 2017. of dry and perishable goods per across the major cities, as well introduction of new state of the a temporary store was quickly created annum for the Torres Straight Island and hardware sectors. as smaller distribution centres in art material handling systems in a The first to market opportunity out of little more than a tin shed. Communities. We closely partner with regional areas. number of our distribution centres. involved the delivery of 67,553 cases Our people are our best asset, CEQ to facilitate the organisation’s These systems improve safety, Ritchies and Metcash teams filled the and 798 pallets on 37 trucks, which and we have around 5,000 of the Metcash has the widest retail growth plans. support Independent Retailers by temporary store quickly with deliveries were delivered within the first five company’s ~6,700 employees distribution network in Australia. improving efficiency and optimise made on a 12 pallet rigid perishable hours of release. Over half of our working in our wholesale distribution Housing grocery, convenience, Metcash’s cost to serve equation. truck, as the store could only receive extensive IGA retail network received operations, dedicated to ensuring hardware and liquor products, we rigid vehicles due to its residential Coca-Cola No Sugar within just four the best possible level of service service Independent Retailers in all Partner of choice for location. Metcash has been combining days of the product’s launch. Trucks travel over to our extensive network of corners of Australia, including; Cape chilled, frozen, dry grocery and liquor Independent Retail customers. York and Cooktown in the North retailers and suppliers 40 million kilometres on the one truck 3-4 times per week East, Dampier and Broome in the There is a very strong By combining their buying power we since the reopening. The store has per year making North West, Albany and Denmark in interdependency between Metcash are able to improve their competitive performed very well and the new store the South West and Tarwin Lower as the wholesaler, our suppliers and Metcash deliveries to position against larger competitors. re-build is underway. We are able to provide Independent and Foster in the South East. our retailers. We work closely with Independent Retailers our key supplier partners under a Retailers with a competitive and Along with capital cities and regional Vendor Managed Inventory program, throughout Australia. efficient scale of operation across centres, Metcash also supports which involves using supplier the wide range of products that independents in areas that others intelligence to ensure that we order we sell. don’t reach. We provide products optimum levels of stock to support 12 to some of Australia’s remotest 13 our retail partners. #Food
Retail Stores: Super IGA: 397 Food IGA: 823 IGA-Xpress: 206 Friendly Grocer/Eziway: 257
Helping independent retailers thrive Best stores in town
etcash has customers, providing them with all ~35 new stores being in the pipeline Taylor Road IGA IGA Romeo’s Food Hall Ritchies SUPA IGA the tools they need to become the for opening in FY18. Multi-store come a long ‘Best Store in Town’. owners are also investing in new Nedlands, WA Sydney, NSW Dromana, Victoria store formats that are tailored Two key initiatives have been way from its to meet the needs of their local introduced in recent years with M community. Great examples of Designed to cater to the needs of city origins in 1924 as a consumers in mind. Our Price Match James and Rita Kelly’s Taylor Road The Ritchies’ latest DSA store in these are IGA’s Romeo’s Food Hall in workers, commuters and people living program ensures that our pricing store has been designed so that Dromana is an up-market format full standalone corner Sydney’s CBD and Ritchies SUPA IGA in the inner-city, this one-of-a kind remains competitive with the customers’ five senses compete each of fresh and unique products that in Dromana, Victoria (see opposite). store, located in the business heart of store in Sydney’s major supermarket chains for both time they walk in the store – colourful clearly differentiates them from their bursts of flowers, freshly brewed Sydney, offers their customers a fresh, competitors. The store showcases branded and private label products, Metcash also recently introduced variety-driven range of delicious meals Wolloomooloo. and is now incorporated in ~1,000 a new mid-tier private label range coffee and fresh baked muffins, are products such as artisan bread, hand- complemented by signature lines, with and snacks which they can buy on- rolled sushi, dry-aged beef and even Servicing over ~1,680 supermarket supermarkets in the IGA network. called Community Co. The range the-go to eat at work or home. offers 100 new products which the store stocking in excess of 290 bespoke peanut butter. customers through bannered stores Store environment is also a focus, seek to deliver greater value and locally produced WA products. The Romeo’s passion for high quality, such as IGA, Foodland, Friendly and the Diamond Store Accelerator Less than a week after the store quality to consumers while making gourmet fresh food and tailored Grocer and Eziway, Metcash offers (DSA) program is a unified store The store caters for the lunchtime opening, sales were up 50 per cent on a contribution to the community product has customers coming back a wide range of core wholesale refurbishment program across the and home-ward bound shoppers with the same time last year as customers through the Community Chest Fund. every day – even twice a day! grocery, fresh produce, meat, bakery IGA banner, which aims to improve ready-to-go meals including roast welcomed the up-market selection and deli products. the shopping experience for the dinners, casseroles, gourmet pies and “This is the next step in retailing for the of cheese, bread, meat and ready-to- Earnings performance* delicious salads created by in-house eat meals. Our Convenience business customer. This places an increased Romeo Group. It has been designed with chefs. The store’s success also comes comprises two integrated wholesale emphasis on the amount of floor Including the benefit of a 53rd choice and convenience at its core.” “With customers shopping up to three to from servicing community needs, distribution arms established space given to fresh produce and trading week, our Food business four times a week, independent stores and going above and beyond when it -Joseph Romeo to service the Australian petrol ready-made meals, improves delivered underlying EBIT for the are well positioned to benefit due to comes to customer service. and convenience sector across customer access and the overall year of $180.0 million, in line with their convenient location, but only if the Australia; Campbells Wholesale & layout of the store. To date over the prior year. Weak economic “Our success comes through creating an product range is right. C-Store Distribution. 250 refurbishments have been conditions in Western Australia enjoyable shopping experience for our We continue to see positive results from completed, and the majority of and intense competition led to a local community.” ‘Best Store in Town’ participating stores have witnessed continuation of difficult market the investments in our store network. We a significant increase in sales conditions for the business. Sales -James Kelly have a focus on further upgrades and will The consumer is the central player as a result. improved 1.3% to $7.65 billion, and use the proven DSA program which has in all our plans and with an ever pleasingly our IGA retail sales on a been developed alongside Metcash.” changing retail landscape, Metcash’s Continued investment in the retail 14 like for like basis were positive for - Fred Harrison 15 continued focus is to support the network led to 32 new stores the third financial year in a row. success of our Independent Retail opening during the year, and another *A full review of the financial results is presented in the Operating and Financial Review on pages 29 to 31 of the Annual Report. #Liquor
Retail Stores: Cellarbrations: 553 Liquor Bottle-O/ Bottle-O Neighbourhood: 457 IGA Liquor: 462 Other: 1,045
Helping independent retailers thrive Investing for growth Best stores in town
etcash is Independent Brands ‘Best Store in Town’ Investing for growth Montrose IGA Plus The Bottle-O Wyee Australia’s Australia (IBA) The smaller store format, and We continued to focus on converting Liquor Cellars Our IBA banner group is the second localised product range of our IBA existing wholesale customers to our largest largest retail group in Australia. It retailer network, continue to position IBA network as well as progressing our Montrose, VIC Wyee NSW M includes strong national brands our network well for the shopper consolidation strategy. This included broad range liquor with a framework that enables trend of buying smaller quantities the acquisition of Thirsty Camel in NSW Based at the foot of the Yarra Valley, Chris Jameson recently relocated wholesaler. independent liquor retailers to per visit, but shopping more often. and Tasmania, Big Bargain in Tasmania, Brad Munro has transformed IGA and renovated her Bottle-O store at compete equally with larger and the acquisition of Porters Liquor. Montrose into a destination store Wyee, NSW to the highest standard, Our Liquor pillar has two divisions; Our product range is tailored competitors, and support their for shoppers looking for premium and it is now a standout at the Wyee Australian Liquor Marketers (ALM) to reflect our local customers’ IBA will continue to apply the best long-term sustainability. We do wine, spirits and craft beer local to community shopping centre. The new and Independent Brands Australia requirements from both a range and retail offer by location to maximise this through group buying power, that region. The personalised service store has an extended product range (IBA). The liquor division and its price perspective, and there is a key the sales of our independent providing strong marketing support shoppers get from the Montrose tailored to the local community, and related businesses operate out of focus on providing shoppers with retail customers. and promotional programs, IGA team, showcases their product together with high service levels, is 15 distribution centres located in knowledgeable friendly service. and through a wide variety of Porters Liquor knowledge, and along with their newly attracting significantly more customers each state and territory in Australia, The network continues to invest in launched ‘Cellar Selections’ premium than when operating from the original retail services to ensure high Porters Liquor is a well-recognised and in New Zealand. improving the shopper experience, range, shoppers now have access to a store. The upgraded store has now store standards. premium brand, positioned to capitalise and FY17 saw a further ~95 stores truly localised offer. become a repeat finalist in the NSW Australian Liquor on the growing trend to higher quality Our IBA network includes 2,517 complete the store refresh program, IBA Bottle-O of the year awards. products. It now forms part of our IBA Marketers (ALM) stores across brands such as and ~130 stores underwent “We sought to be the best liquor store in Cellarbrations, The Bottle-O, IGA banner group, and provides significant ALM is a broad range liquor upgrades to their cool rooms. the area, and have achieved this through “Our new store is proving very popular Liquor, Duncans, Thirsty Camel, Big growth opportunity for our Liquor wholesaler supplying approximately the creation of our differentiated localised with local shoppers and we have seen Bargain and Porters. In FY17, sales business. This includes a potential 12,000 hotels, liquor stores, Earnings performance* offer, together with personalised service sales grow more than 25%. Staying close to the IBA network represented expansion in store footprint from 30 to restaurants and other licensed Our Liquor business continued to and in-depth knowledge on products, to our customers and market trends, and ~55% of Liquor pillar sales. around 100 nationally. premises throughout Australia. It grow earnings with EBIT up 7.9% to especially local wines, beers and spirits.” having the flexibility to adapt is key to our success.” also has a specialist on-premise Both ALM and IBA work to support $67.0 million for the year. - Brad Munro liquor division supplying bars, pubs, Independent Retailers provide end - Chris Jameson Sales increased 3.5% to $3.33 restaurants and hotels. customers with a competitively billion and like-for-like sales in our priced, extensive liquor range. IBA bannered network increased This includes providing the most 1.7%. The IBA bannered network efficient and cost effective supply has recorded sales at a compound chain possible. 16 annual growth rate of ~7% over the 17 past three years. *A full review of the financial results is presented in the Operating and Financial Review on pages 29 to 31 of the Annual Report. #Hardware
Retail Stores: Mitre 10: 372 Hardware HTH and related brands: 368 True Value Hardware: 67
Helping independent retailers thrive Best stores in town
n October 2016, Our store network ranges from The rollout of our Sapphire Store Johnson Brothers Womersley’s Provans Home Timber large format warehouses to smaller Refurbishment program in Mitre Metcash purchased format convenience operations, 10 continued during the year, with Mitre 10 Mitre 10 and Hardware the Home Timber trade centres and frame and truss investment in a further 10 stores. I sites, each catering to a broad mix of This takes the total stores upgraded Mona Vale NSW Chelsea VIC Clifton Hill VIC trade and DIY consumers. to Sapphire standard to 22, with the & Hardware Group average sales uplift for these stores Johnson Brothers have been servicing The Womersley family is one of the With its origin dating back to the Under the IHG network, we have which, combined ~17%. Sydney’s local Northern Beaches founders of the Mitre 10 business. 1880s, the Provans store has been a clear mandate to support the community for over 60 years. This With their Chelsea store positioned in in Barry Rosenburg’s family for with our Mitre 10 growth of Independents within the Our Core Ranging program, which year they opened a new ‘Best Store in close proximity to a large Hardware more than two generations. Barry’s business, created the hardware sector in Australia. Our includes offering customers more Town’, relocating their existing store chain competitor, the family embarked store became part of the IHG Group culture is built on being a low-cost choice, has now been implemented to larger premises to cater for their on a transformation of the store following the acquisition of HTH last second largest player and transparent business partner in over 50 stores and is delivering growing Trade and DIY business. through Metcash’s Sapphire program in October, and is a great example of to our members. Partnership is also strong sales growth across key 2016 to improve its competitiveness. being the ‘Best Store in Town’. Provans In addition to its high store in the Australian the culture on which the relationship ranges such as fasteners, hand The store has experienced good has a reputation for being the leading standards and ‘shopper led range’ with our suppliers is founded. tools, power tools, paint and growth through its focus on high supplier to the trade in Melbourne Hardware market. of competitively priced products, cement. store standards, including providing for restoring heritage houses. Around the site now has separate trade The combined business, named ‘Best Store in Town’ ‘Mighty Helpful’ service and having 90% of the stores sales are to trade and retail entrances, an undercover the Independent Hardware Group IHG is committed to supporting our Earnings performance* a strong differentiated offer for its customers, and the store is ideally set drive through, a trade paint offer, (IHG) is a wholesaler and distributor independent store owners to be Our Hardware business continued to trade customers. up to ensure its extensive timber offer and a garden centre as well as 150+ with sales of more than $2 billion, ‘The Best Store in Town’. This means deliver earnings growth with EBIT of remains under cover during collection, parking spots. “With competition close by, our Sapphire servicing ~740 bannered stores and having a differentiated store offer $48.5 million for the year, up from and that tradies can move through the store upgrade and our strong trade over 500 un-bannered stores. It is that includes being locally owned, $32.8 million in the prior year. This “Our upgraded store format is proving site quickly. offer are helping deliver a competitive the largest channel of independent with a tailored ‘shopper led’ range included $12 million of EBIT from very popular with customers and we are business that is tailored to our local The high level of service, product offer home improvement and hardware of competitively priced products, HTH for the period since acquisition, seeing good sales growth” customer base.” and store standards saw Provans operators in Australia, with trade together with superior customer and increased earnings in Mitre 10. - Ged Johnson awarded Home Time & Hardware’s sales as its strength. service and convenient store layouts - Peter Womersley “Store of the Year” in 2017. with high standards. “We recognise the benefits of scale and are pleased to be part of the larger IHG network” 18 - Barry Rosenberg 19
*A full review of the financial results is presented in the Operating and Financial Review on pages 29 to 31 of the Annual Report. #Corporate Social Responsibility
#CSR
Corporate Social Responsibility
Supporting local communities
he Metcash Many communities have benefited from the purchase of much needed business has medical equipment, school equipment, local fire-fighting equipment as well always been as through disaster relief support such T as food and gift vouchers. driven by its strong connection to the During the year, IGA’s across NSW and the ACT donated $150,000 to communities we serve. the Humpty Dumpty Foundation to support the purchase of medical For us, good Corporate Social equipment for hospitals. In Victoria, Responsibility is about our role the IGA network donated $50,000 to within the broader community, our the Royal Children’s Hospital Good connections within it and supporting Friday Appeal. our locals to be the heart and soul of communities right around the country. The IGA network has a proud history of supporting local communities in We focus on having an integrated times of need. During the year, the approach to community initiatives, Queensland IGA network donated partnering with our customers, $100,000 in gift cards to residents Special Olympics - celebrating a 25 year partnership with IGA Sallie Jones from Gippsland Jersey, our IGA Family suppliers and people to strengthen affected by Cyclone Debbie. In the program Ambassador, providing members with our level of engagement. worst impacted areas, IGA West nutritious recipes using milk from her farm We acknowledge responsibility for Mackay, SUPA IGA Sarina, SUPA IGA Living healthier lives – Safety and wellbeing In addition to safety, the wellbeing the impact our business operations Bowen and SUPA IGA Proserpine of our people is a top priority. may have on the environment, and donated our Community Co water promoting healthy families The safety and health of our people, Reflecting this, the company provides continue to pursue opportunities to and UHT long life milk to local SES and healthy communities contractors and visitors is at the core the opportunity for employees to reduce this. centres to assist those impacted by of everything we do. We continue access a range of employee benefits As we aspire to be healthier and to strive for improvement and to be the cyclone. happier, it is important that we deliver to promote the wellbeing of our Our communities world class in safety. employees. These include wellbeing At a national level, we have long- nutritious healthy food options, leave days, volunteering days, flexible A key element of our vision is to standing support partnerships with as well as supporting educational During the year we implemented working arrangements, counselling support communities to thrive. the Special Olympics, St Vincent de materials on food and living a additional initiatives to improve services, paid parental leave and Engaging and supporting our Paul and the McGrath Foundation. All healthy lifestyle. our safety performance, including communities and our customers to progressing greater automation allowing eligible employees to access three charities received both in kind Under the IGA Family Program, we help deliver this vision is an integral of processes to reduce the risk of an additional week of leave per year. support through staff volunteerism, as strive to support local communities part of what we do. well as financial support. manual handling, as well as increasing by providing members with tools awareness across our operations Our support includes financial We also have a long-standing to promote healthy lifestyles for around the safety of our people, 25 250 donations through our Independent partnership with Foodbank. Foodbank a healthier, happier Australia. This contractors and visitors. Retailer network, the donation of staff rescues surplus but edible food and includes providing communities with 20 200 time, and the donation of food and access to healthy and affordable Our Lost Time Injury Frequency Rate groceries from the country’s farmers, 15 150 products to those in our communities manufacturers and retailers, and recipes, arts and craft activities that (LTIFR) reduced to 10.1 for the year, who are most vulnerable. donates this to over 2,600 charities encourage creativity and recycling, from a LTIFR of 10.3 in the prior year . 10 100 fact sheets to teach children about This reflects a decrease in the number Our Independent Retailer network and 1,750 schools. Since 2012, 5 50 the origins of food, as well as special of LTIs to 90, compared with 94 in the has donated over $80 million into Metcash has donated over one million offers to help our members shop to a prior year. There was also a significant 0 0 local communities over the past 25 kilograms of food to Foodbank. budget. reduction in our High Potential 12 13 14 15 16 17 12 13 14 15 16 17 years through the Community Chest Incident measure, which reduced Fund. This has supported over 7,000 Since the program’s inception one from 63 incidents in the prior year to Lost Time Injury Frequency Rate Lost Time Injuries charities at a national, state and local year ago, over 16,000 families 35 in FY17. level, including schools, sporting clubs, have become members of the IGA The LTIFR for FY16 has been restated from country fire services, hospitals and Family Program. 8.5 to 10.3 following a review of our safety disaster relief services. statistics reporting carried out by PwC. 20 21 IGA Marketing team volunteer day helping to support Vinnies Metcash donates to Foodbank IGA Retailers supporting the Humpty Dumpty Foundation through Community Chest donations
Diversity, inclusion and Sourcing with integrity We are a member of the Roundtable Energy and emissions Waste and packaging on Sustainable Palm Oil (RSPO), and our people As a business we are responding continue to work with our suppliers Our energy savings initiatives Waste and its diversion to recycling Inclusion and diversity are to the expectations of our to ensure that Palm Oil used in have delivered a 6.3% reduction in is an important area of focus for our fundamental to our culture and communities, this has been our private label products is from emissions at our Distribution Centres, business, and we are proud to play core values. We recognise that evidenced by the launch of the sustainable sources. which account for the majority of the a stewardship role in these areas. each person has unique strengths, Community Co brand during the company’s energy consumption. We are committed to the Australian year which seeks to deliver greater Packaging Covenant, and continue and that high performance Our environment The driver of this improvement was value and quality to consumers. to work closely with our partner is underpinned by embracing We are committed to reducing our the implementation of a number of Fundamental to this is ensuring suppliers to reduce the volume of those strengths. impact on the environment, and energy savings projects, including that our products are developed product packaging. work with our people, suppliers LED lighting retrofitting and the In addition to being a member of in accordance with expectations and customers to identify areas for implementation of monitoring Our programs to increase the the Diversity Council of Australia including responsible sourcing. (DCA), the company has established improvement. programs to review energy usage on a amount of material that is recycled, Our progress in responsible sourcing regular basis. rather than being sent to landfill, are a Diversity and Inclusion Council that We report annually against a included the following during delivering good results. This year we is responsible for driving greater number of compulsory and voluntary Energy reduction is an ongoing priority the year: diverted ~16% of waste from landfill. awareness of diversity and inclusion programs, including: for us, and we are optimistic that across the organisation, as well as > Use of 100% Certified further opportunities will arise through We are committed to improving > Dow Jones Sustainability Index creating a comprehensive action Sustainable Palm Oil (CSPO) the use of more energy efficient our performance in these areas, (DJSI) plan for the Metcash group. across our private label brands. technologies that are currently and further opportunities are being We believe that encouraging This includes a mix of mass > Carbon Disclosure Project (CDP) under review. developed by work teams, primarily at diversity will contribute to high balance and segregated palm our distribution centres. oil. > National Greenhouse and performance by driving business Energy Reporting Act (NGERS) results, encouraging greater > Sourcing the majority of our innovation, and by attracting, Tuna using sustainable fishing > Australian Packaging Covenant recruiting, engaging and retaining a methods (FAD Free) (APC) diverse team of high quality people. > Ensuring that 100% of our > Western Australian Waterwise The Metcash workforce is currently private label brand tissues, Business Program comprised of 33% females and toilet paper and kitchen towels There were no breaches of 67% males. Women now hold 30% are sourced from third-party environmental laws or regulations in of all senior manager roles in the certified sustainable sources the year. company. Woman account for 43% of the Metcash Board of Directors, > The introduction of sow stall which is well ahead of the ASX free pork in our Community Co 200 average. range > Significant progress towards our target of achieving 100% cage free eggs in our private label brands by 2018
22 23 #Our people #Our board
Our people Our board Senior management
Ian Morrice Steven Cain Mark Laidlaw Scott Marshall Robert Murray Ian Morrice Patrick Allaway Fiona Balfour MBA M.Eng B.Ec, CPA B.Business MA Hons, Economics (Cantab) MBA BA, LLB BA (Hons), MBA, Grad Dip IM, FAICD CEO CEO CEO CEO Non-executive Chairman CEO, Executive Director Non-executive Director Metcash Group Supermarkets & Convenience Independent Australian Liquor Non-executive Director Hardware Group Marketers Chair of the Nomination Chair of the Audit, Risk & Ian has over three decades of Steven joined Metcash in Committee. Compliance Committee, Chair of People & Culture retail experience as Managing 2015 with significant local Mark joined Metcash in 2001 Scott began his career Member of the Nomination Committee, Member of the Director, Trading Director & international business and was appointed CEO of Mitre with Metcash in the ALM Committee. Nomination Committee. and Retail Director for some experience through previous 10 Australia in May 2010. business 24 years ago and of the UK’s leading retailers, directorships at Coles, Asda was appointed CEO of ALM in Mark has extensive experience including the Kingfisher (UK), Pacific EquIty Partners & December 2013. in general management, sales, Group and Dixons Retail. Ian ITV (UK). operations and commercial His areas of experience cover was Group Chief Executive management and prior to warehousing operations Officer and Group Managing Steven has attended joining Metcash, Mark worked and management, sales, Director of New Zealand’s management programs at for Mobil Oil. retail operations, state Warehouse Group. Harvard & London Business Schools, and has a Master of general management and Chemical Engineering Degree marketing management. from Imperial College London.
Brad Soller Linda Venables Edwin Gear Penny Coates Tonianne Dwyer Murray Jordan Helen Nash Julie Hutton B.Comm, B.Acc, M.Comm, CA (SA) B.Sc Hons B.Sc, MBA BA Hons, Chartered Fellow CIPD, GAICD BJuris Hons, LLB Hons, GAICD MPA BA Hons, GAICD B Asian Studies (Viet), LLB, LLM, GAICD CFO Chief Logistics Officer – Food & Chief Information Officer Chief People & Culture Officer Non-executive Director Non-executive Director Non-executive Director Metcash Group Liquor Company Secretary Edwin joined Metcash in 2014 Penny joined Metcash in 2015 Member of the Audit, Risk Member of the Audit, Risk Member of the People Linda started with Metcash Brad joined Metcash in and was appointed as Group as Chief People & Culture Officer. & Compliance Committee, & Compliance Committee, & Culture Committee, in October 2013 and was January 2015 and prior to CIO in April 2015. Edwin is Penny has extensive international Member of the Nomination Member of the Nomination Member of the Nomination appointed Chief Logistics Officer that was the CFO of David responsible for IT’s cross- HR and line management Committee. Committee and People & Committee. Jones and CFO of Lendlease. in February 2015. functional collaboration with experience gained in the retail, Culture Committee. Brad is a Chartered group companies. financial services and professional Linda’s career spans both Accountant having worked services industries. FMCG and Retail, including 3rd with PwC in both London Before joining Metcash Edwin party logistics in Europe and and Johannesburg. held various executive roles in Prior to joining Metcash the Australian retail market. merchandising, logistics and Penny worked for TAL as their Linda also has extensive technology with Foodstuffs Chief Customer Service & systems implementation, Wellington and Mitre10 in New Operations Officer. program management and Zealand and Supergroup in For Directors’ biographies, please see page 34 of the Annual Report. For more information M&A experience. South Africa. on Board evaluation, please refer to the Corporate Governance page on our website: www.metcash.com/corporate-governance
24 25 #Financial Report Financial Report Directors’ Report For the year ended 30 April 2017 For the year ended 30 April 2017 Contents Directors’ Report 27 Statement of Comprehensive Income 54 Statement of Financial Position 55 Statement of Changes in Equity 56 Statement of Cash Flows 57 Notes to the Financial Statements 58 Directors’ Declaration 96
Auditor’s Independence Declaration 97 Independent Auditor’s Report 98 • • • •
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ASX Information Corporate Information
Year ended 30 April 2017 ABN 32 112 073 480
Additional information required by the Australian Securities Exchange and not shown elsewhere in this report is as follows: The information is current as at 30 June 2017: Directors Metcash Food & Grocery Distribution of Equity Securities Robert Murray (Chair) (Head Office) The number of shareholders, by size of holding, in each class of share is: Ian Morrice (Group CEO) 1 Thomas Holt Drive Size of Holding Number Of Shareholders Size of Holding Number Of Shareholders Patrick Allaway Macquarie Park NSW 2113 1-1,000 6,445 10,001-100,000 3,731 Fiona Balfour 1,001-5,000 11,990 100,001-9,999,999,999 156 Tonianne Dwyer 61 2 9741 3000 Murray Jordan 5,001-10,000 4,407 Total 26,729 Helen Nash PO Box 557 There were 1,414 shareholders holding less than a marketable parcel of Metcash ordinary shares. Macquarie Park NSW 1670 Company Secretary Twenty largest holders of quoted shares Julie Hutton Australian Liquor Marketers The names of the 20 largest holders of quoted shares are: (Head Office) Name Number Of Shares Percentage Of Shares Share Register 1 Thomas Holt Drive HSBC Custody Nominees 394,056,393 40.389% Boardroom Pty Limited Macquarie Park NSW 2113 J P Morgan Nominees Australia 154,760,650 15.862% GPO Box 3993 Citicorp Nominees Pty Limited 104,491,061 10.710% Sydney NSW 2001 61 2 9741 3000 National Nominees Limited 37,876,122 3.882% BNP Paribas Nominees Pty Ltd 23,168,728 2.375% 1300 737 760 PO Box 557 BNP Paribas Noms Pty Ltd 19,701,687 2.019% 61 2 9290 9600 Macquarie Park NSW 1670 Bond Street Custodians Limited 9,158,056 0.939% HSBC Custody Nominees 8,623,107 0.884% Auditor Independent Hardware Group (Head Office) Citicorp Nominees Pty Limited 7,899,631 0.810% Ernst & Young BNP Paribas Nominees Pty Ltd 4,950,000 0.507% 200 George Street 15 Corporate Drive Buttonwood Nominees Pty Ltd 4,400,000 0.451% Sydney NSW 2000 Australia Heatherton VIC 3202 RBC Investor Services 4,337,923 0.445% UBS Nominees Pty Ltd 3,759,613 0.385% 61 2 9248 5555 61 3 9264 5000 Bainpro Nominees Pty Limited 2,043,954 0.209% HSBC Custody Nominees 2,013,641 0.206% National Office Locked Bag 10 Doveton VIC 3177 Ecapital Nominees Pty Limited 1,841,874 0.189% 1 Thomas Holt Drive Bond Street Custodians Ltd 1,477,298 0.151% Macquarie Park NSW 2113 National Nominees Limited 1,396,324 0.143% Corporate Governance HSBC Custody Nominees 1,284,713 0.132% PO Box 557 Powerwrap Limited 998,219 0.102% Macquarie Park NSW 1670 A copy of the Corporate Governance Total 788,238,994 80.792% Statement can be found on our 61 2 9741 3000 website. Visit www.metcash.com/ Substantial Shareholders investor-centre/corporate-information/ corporategovernance. The following is extracted from the Company’s register of substantial shareholders: www.metcash.com Number Of Shares Number Of Shares Allan Gray Australia Pty Ltd 148,303,522 Macquarie Group Limited 59,492,070 BT Investment Management Limited 124,840,430 Dimensional Equities 48,864,690 Lazard Asset Management Pacific Co 60,146,842 JPMorgan Chase & Co. 48,853,745
Voting Rights All ordinary shares (whether fully paid or not) carry one vote per share without restriction.
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