ABN 32 112 073 480 Metcash Limited Annual Report 2018 Championing SuccessfulIndependents 2018 Annual Report Metcash is Australia’s leading wholesaler and distributor, supplying and supporting more than 10,000 independent retailers across the Food, Liquor and Hardware sectors. Our focus is to champion successful independents to become the ‘Best Store in Town’, by providing our network of strong retail brands with merchandising, operational and marketing support. Contents About Us ............................................ 2 Logistics ...........................................18 Chairman’s Report ............................ 4 CSR ...................................................20 CEO’s Report ...................................... 6 Our People .......................................24 Financial Highlights ........................10 Our Board ........................................25 Food .................................................12 Financial Report ..............................26 Liquor ...............................................14 Corporate Information ..................109 Hardware .........................................16 About Us Metcash is Australia’s leading wholesale distribution and Our vision marketing company with sales of over $14 billion in FY18. Passionate about We believe that it is absolutely vital to Australia that there is a sustainable, independent, family-owned business Best store in every town sector. Independent retailers support their local communities. We help them to be the ‘Best Store in Town’ by independents providing merchandising, operational and marketing support across our Food, Liquor and Hardware pillars. For our retailers and their shoppers, we want to help them We want our people to be known for being passionate to be the ‘Best Store in Town’, which is loved by locals for about independents. its offering and service. In Food, we proudly support a network of over 1,600 independently owned stores Australia-wide, We have inspiring leaders who enable their teams through including the well known IGA and Foodland (IGA) brands. Our retailer partners mix the charm, Every day, our retailers are delivering on what shoppers empowerment and collaboration. knowledge and convenience of a local store, with the quality and competitive prices of a national one. say they want – including great service, a broad range of We nurture and develop our people’s careers, we coach The stores that we support sit at the heart of the local community, sourcing the best products from products, an enjoyable shopping experience, knowing the and mentor each other, we have an agile mindset and we local producers and helping the local economy. families behind the stores, stocking local products and lead change. being part of the broader community. We believe in ourselves and others and we accept We celebrate individuality and help our independent responsibility. In Liquor, we are the largest supplier to independent liquor retailers and the second-largest broad stores to differentiate themselves from their larger-scale range liquor wholesaler in Australia. Through our Independent Brands Australia (IBA) banner group, competitors. We offer a distinctive and unique service and We want to be a favourite place to work. we support over 2,700 stores across leading independent retail brands such as Cellarbrations, source local products from local communities. You’ll often The Bottle-O, IGA Liquor, Duncan’s, Thirsty Camel, Big Bargain and Porters. notice that independent retailers stock brands that you Thriving communities, can’t find anywhere else in Australia! giving shoppers choice In Hardware, we are the largest independent hardware group in Australia and a true leader when it comes to servicing the trade market. Under our Independent Hardware Group (IHG), we support leading independent hardware brands Mitre 10 and Home Timber & Hardware along with Hardings, Business partner of choice for We want to ensure Australia has thriving communities – Thrifty-Link Hardware and True Value Hardware; we supply more than 1,200 stores nationwide. suppliers and independents giving shoppers choice, by supporting local and aspiring business owners. We want to be known as the business partner of Metcash has been championing local entrepreneurs since choice for our retailers by offering a portfolio of leading the 1920s. We help independent retailers thrive through Our purpose and vision independent retail brands, and by being a world-class enhancing their business and marketing skills. Our independent retailers have a strong connection We have a single purpose – championing successful independents wholesaler for our suppliers. The best store in town is supported by a wholesaler who to their communities. We are passionate about our is world-class and the most efficient we can be. community programs, such as Community Chest where local IGAs donate valuable funds to support local With our buying power as Australia’s largest distribution Our values community groups. network, we have the best commercial agreements that Integrity is our foundation benefit Metcash, our suppliers, and our retailers to help all We learn from and share our successes and failures and we always look for a better way. We believe: Independence is worth fighting for; in treating our people, retailers and suppliers the way we like to be parties thrive and grow. treated; and in giving back to the communities where we live and work. Our logistics operations are world-class and we provide a Our retailers are investing in their businesses and we have true end-to-end solution. a pipeline of aspiring retailers who are creating future growth opportunities. Our brands 2 | Metcash Annual Report 2018 #AboutUs Earnings performance It is pleasing to report that we have continued to make significant inroads into achieving gender pay equality Chairman’s Underlying profit after tax in FY18 increased 10.7% to across the Group. At year-end, the gap had reduced to less $215.6m before adjusting for a 53rd trading week in than 2%. the prior financial year. Underlying earnings per share increased 8.9% to 22.1 cents per share. Further remuneration details can be found in our Report Remuneration report commencing on page 38. The advice from Drakes Supermarkets was taken into account in the company’s year-end testing of the carrying Board changes value of assets and was the primary driver of a $352.1m I was delighted to announce the appointment of Anne impairment charge to goodwill and other net assets in Brennan as a non-executive director on 26 March 2018. the Food pillar. The impairments are non-cash in nature Anne is a very experienced company director with a and have no impact on the company’s debt facilities or distinguished executive career in the corporate sector compliance with banking covenants. and in professional services. Anne’s breadth and depth of The impairment charge is shown as a significant item in experience, particularly in finance, is proving to be an asset Robert Murray our FY18 accounts, and led to the company reporting a to the Board. Chair statutory loss for the year of $149.5m. Anne’s appointment followed advice from Patrick Allaway Strong financial position and capital that he would retire from the Metcash Board following management completion of the company’s FY18 reporting process. I New Group CEO and strategic focus would like to thank Patrick for his outstanding contribution I am pleased to present Metcash’s The Group continued to generate strong cash flows, and as Chair of the Audit, Risk and Compliance Committee Annual Report for 2018 – a year Last year I advised shareholders that Jeff Adams would with a cash conversion ratio of approximately 100%, we where he brought improved oversight to our capital replace Ian Morrice as Group CEO. This followed Ian’s ended the year in a net cash position of $42.8m. management, reporting and risk management framework. in which the Group performed earlier notification that he intended to retire from the role Our strong balance sheet and cash flows have provided I am pleased to have supported the Board’s appointment commendably despite experiencing in 2018 following five years as Group CEO. Jeff joined in us with the capacity to fund our new initiatives as well of Tonianne Dwyer as the new Chair of the Audit, Risk and September last year and worked alongside Ian for three highly competitive and challenging as return capital to shareholders. The Board considered Compliance Committee. months before being appointed Group CEO in December. a range of options for returning capital, and was pleased I am confident that our mix of Director skills, background conditions, particularly in Jeff’s transition into the role has been seamless, and to announce on 25 June 2018 an Off-Market Buy-Back and gender balance ensures that we have an appropriately he has quickly formed relationships with our key with the intention to purchase approximately $125m of diversified Board. Supermarkets. stakeholders and has a clear vision as to how he will lead equity. The Buy-Back is expected to be earnings per share our company into the future. accretive and benefit all shareholders. We expect the The future The ongoing execution of our strategic initiatives across As the Group has a strong balance sheet with the capacity Buy-Back to be completed by 20 August 2018. Looking forward, we remain focused on supporting our our Food, Liquor and Hardware pillars underpinned the to invest, the next phase of the company’s strategy will The Board also determined