Metcash Limited · ASX:MTS

Metcash — Investor Day (March 2014)

58 slides from Metcash's investor day presentation, Mar 21, 2014

1. Slide 1: Metcash Announces Transformation Plan

   Friday, 21 March 2014 Metcash Limited ABN 32 112 073 480 50 Waterloo Road Macquarie Park NSW 2113 Australia ASX ANNOUNCEMENT METCASH ANNOUNCES TRANSFORMATION PLAN Metcash Limited today released details of its transformation plan following a strategic review that began in June 2013. Ian Morrice, CEO

2. Slide 2: Investment and Funding Plan

   Metcash is driving the transformation of MFG with significant investment over the next three years. Total capex is estimated to peak at between $150m and $180m in 2015, reducing to $130m-$150m in 2016 and 2017. The costs of the transformation plan are as follows: • MFG transformation: $100m - $125m

3. Slide 3: Successful Independents: Strategy Briefing, March 21st 2014

   SUCCESSFUL INDEPENDENTS STRATEGY BRIEFING, MARCH 21ST 2014

4. Slide 4: Introduction & Group Overview

   INTRODUCTION & GROUP OVERVIEW SUCCESSFUL INDEPENDENTS

5. Slide 5: Our Purpose: Successful Independents

   Our purpose: Successful Independents Our values Our vision Integrity is the foundation of our values:  Growing our markets and delivering value to  Supporting our customers and suppliers our stakeholders  Our people are empowered and  Distribution and merchandising excellence accountable  Retai

6. Slide 6: The Strategic Review

   The strategic review June (Review kicked off) We remain very confident about the future of independent retailing:  Consumers want a convenient, local, successful independent alternative to the chains Dec (1H14 Results  Retailers want to continue to grow their businesses – market  Suppliers can re

7. Slide 7: Our Strategic Priorities

   Our strategic priorities To underpin long-term sustainable growth of the independent network we will:  Reinvest in our core business  Become demand driven not supply led  Ensure group is prudently funded 5

8. Slide 8: 1. Transformation of Metcash Food & Grocery

   1. TRANSFORMATION OF METCASH FOOD & GROCERY SUCCESSFUL INDEPENDENTS

9. Slide 9: We Recognise That We Must Change

   We recognise that we must change MFG Revenues have plateaued Resulting in operating de-leverage 15 700 $B 600 CAGR: '11-'13: 12 (0.5%) CAGR: '11-'13: CAGR: '08-'11: CAGR: '08-'11: 6.8% 500 (3.9%) 10.2% 9 400 300 6 inflection inflection 200 3 100 - - FY08 FY09 FY10 FY11 FY12 FY13 FY08 FY09 FY10 FY11

10. Slide 10: Changing Our Network Model

    Changing our network model Developed a fact-driven shopper led strategy Model must evolve to remain competitive with input from key stakeholders  Traditionally buying and ranging focused,  Strategy is based on a deep understanding rather than shoppers’ needs of shopper preferences:  Strategy for

11. Slide 11: Transformation Plan Has Identified Six Growth Levers

    Transformation plan has identified six growth levers 1 2 3 4 5 6 Shopper-led Competitive Compelling Retail Network Convenience ranging pricing fresh offer excellence investments reset  Differentiated  Competitive  Space and  Store owner  Launch  Category offer by shelf prices layout excellence

12. Slide 12: To Be Executed Over Three Phases

    To be executed over three phases Strategic 1. Fix the Basics 2. Invest in Growth 3. Sustain Growth Review  Offer competitive prices and  Expand innovation in price  Make every store famous as a promotions and promotions local shopper destination  Develop shopper-led range  Grow new, exciting of

13. Slide 13: Shopper-Led Ranging

    1. Shopper-led ranging: Will drive growth and differentiation Deliver on “How the Locals like it” Shopper and retailer benefits  Recognise that we will buy and range for  Present an appealing and tailored offer shopper needs, not warehouse needs and range to the shopper  Develop an attractive own

14. Slide 14: Tiered Own Brand Offering Is Key

    1. Shopping-led ranging: Tiered own brand offering is key Tier Current offer Ambition  None at present  Build/source strong premium brand to Premium/ differentiate product range controlled  Build controlled brand offer  Significantly strengthen IGA Signature and introduce new everyday product Ev

15. Slide 15: Competitive Pricing: Price Match

    2.Competitive Pricing: Price Match is a key initiative  Price Match will achieve sustainable competitiveness in shelf prices and communicate this clearly to the shopper  Metcash Food & Grocery (MFG) and retailers are making a significant investment to match competitors’ prices on thousands of ever

16. Slide 16: Compelling Fresh Offer

    3. Compelling fresh offer: Starts with retail execution 1 Implement optimal fresh format and in-store designs Initial focus will 2 be on investing in our internal Improve in-store execution 35-40% Higher sales/m2 for stores resources and 3 with fresh mix over 30% of helping develop Achieve consisten

17. Slide 17: Leverage Existing Network Excellence

    3. Compelling fresh offer: Leverage existing network excellence Best practice example: Romeo's Supa IGA St Ives, NSW Prominent display for Quality space seasonal allocation and Open, product format design and spacious Clear ticketing, abundant and Great in-store appealing execution Dedicated resourc

18. Slide 18: Retail Excellence

    4. Retail excellence: Underpins retailers reaching potential  Well-trained retail consultants and fresh specialist field force will be increased by 50%  The role of field staff will change from auditor to value-add partner  Complete ‘Diamond Standard’¹ tool-kit which establishes path to excellenc

19. Slide 19: Network Investment: Two Pronged Approach

    5. Network investment: Two pronged approach 1 2 First invest in current network to Then invest in new store openings improve customer offer  Working together to ensure retailers can  Re-start investment in new sites when we fund refurbishments as needed have fully tested the optimised model and pr

20. Slide 20: IGA Retailer Support for Change Is Strong

    IGA retailer support for change is strong  Strong level of retailer engagement / consultation from the beginning  Pilot retailers and working groups Retailer  National Council and State Boards Engagement  Shift in Metcash: from supply led  demand driven  Retailers committed to disciplines arou

21. Slide 21: Convenience Strategy

    6. Convenience strategy: Improve and grow the business 1 2 3 4 Improve C-Store Improve Campbells Distribution Wholesale Consolidate Develop our performance and performance and C-store sector retail formats profitability profitability  Target broader  Improve key  Create a c-store  Test fresh-foc

22. Slide 22: The Transformation Has Begun

    The transformation has begun  We have defined our vision for the future of MFG  Our transformation will be sales growth-led  Shopper-driven organisation with an appealing offer to customers  Offer that is competitive against the majors, but differentiated by being targeted to local communities 

23. Slide 23: Financial Impact of MFG Transformation

    Financial impact of MFG Transformation Revenues:  Sales trajectory expected to return to growth in FY15 as we Returning to execute the strategy trend growth  Returning to the market¹ growth rate over the medium term  Significant investment in the underlying retail offer Earnings:  Significant fu

24. Slide 24: 2. Consolidation & Sustainable Network Growth

    2. CONSOLIDATION & SUSTAINABLE NETWORK GROWTH SUCCESSFUL INDEPENDENTS

25. Slide 25: Australian Liquor Marketers

    AUSTRALIAN LIQUOR MARKETERS SUCCESSFUL INDEPENDENTS

26. Slide 26: Customer Base

    Customer base >12,000 Hotels, liquor stores & other licensed customers  Independent retailer banner groups  Most efficient source of supply  Full service model  Continue to grow On-premise ALM has achieved strong growth in a flat liquor market 24

27. Slide 27: IBA's Growth Is Consumer Led

    IBA’s growth is consumer led  Grow convenient locations  Provide everyday value 64% 24%  Category focus (optimal localised range) of shoppers look at of shoppers price before they actually shop on  Consumer led Category management start their journey¹ price¹  Excellent in-store execution  Stra

28. Slide 28: Future Growth

    Future growth  Right banner to the catchment 87%  Continue to convert fragmented players to of liquor shopping Independent Brands Australia (IBA) occasions are in small format stores Within 12 min Competitor 1 Competitor 2 Rest of market from home ~1,300 ~2,000 ~900 stores ~1,200 stores stores sto

29. Slide 29: ALM Strategic Priorities

    ALM strategic priorities CONTROLLED MARKETING ALM CUSTOMERS RETAILER SUPPORT CULTURE GROUPS  Provide the best low  Consumer focused offer at  Online training academy  Empowered and cost supply chain to store level in place accountable people independents  Continue the growth of  Build on IT pl

30. Slide 30: Mitre 10

    MITRE 10 SUCCESSFUL INDEPENDENTS

31. Slide 31: Significantly Improved Network

    Significantly improved network  Converted 74 independent stores to M10  Established national footprint of JV’s (trade based)  Alliance with Natbuild trade buying group  83% of network brand compliant  Brand repositioning: “Mighty Helpful”  Automated DC’s & China 3PL Since acquiring M10 in 2010

32. Slide 32: Mitre 10 Strategic Priorities

    M10 strategic priorities – consumer driven 1. Value to the consumer 2. Shopper led-range 3. Retail excellence 4. Trade focused 5. Optimal location & convenience 6. Superior customer service SUPPLY CHAIN RETAIL ANALYTICS MARKETING “Lowest cost to Scan data Supporting locals 7. Locally owned serve” Mi

33. Slide 33: M10 Strategy Is Consumer Driven

    M10 strategy is consumer driven SUPERIOR CUSTOMER RANGE & PRICE RETAIL EXCELLENCE DOMINATE TRADE EXPERIENCE  Shopper led range  Convert independent non-  Natbuild alliance  Omni-channel expectation aligned stores to M10  Physical store  Support quality brands  Relationship driven  Web (resea

34. Slide 34: Strong Focus on the Local Market

    Strong focus on the local market  Mitre 10 is well positioned in both trade and customer service because our stores are locally owned  Local ownership only makes a difference if our ‘consumer strategy’ is effectively executed 32

35. Slide 35: Metcash Automotive

    METCASH AUTOMOTIVE SUCCESSFUL INDEPENDENTS

36. Slide 36: Australian Independent Automotive Market Overview

    Australian Independent Automotive Market Overview 17.1M 10 years average 2.4% Vehicles age Annual growth Industry is:  Fragmented $11BN $30BN WHOLESALE TOTAL AUTO MARKET  Diverse  Independent ACCESSORIES CHEMICALS RETAIL FILTRATION OILS Metcash TRADE Automotive FLUIDS TYRE Focus BRAKE SUSPENSION

37. Slide 37: Metcash Has Made Three Strategic Entries Into Automotive

    Metcash has made three strategic entries into Automotive AUSTRALIAN AUTOMOTIVE AUTOMOTIVE BRANDS GROUP PARTCO DISTRIBUTION JULY 2012 DECEMBER 2013 MAY 2013 RETAIL TRADE SERVICE  Foundation entry  Wholesale / trade entry  Adjacency expansion - water  pump, steering & suspension 246 store network

38. Slide 38: Metcash Automotive Strategy Is Consumer Driven

    Metcash Automotive strategy is consumer driven CUSTOMER VALUE LOWEST COST TO SERVE UNIFIED CULTURE BUILDING BRANDS  Consumer led ranging  Increase retailer profitability  Build talent profile  Network growth via through lower CODB greenfield development and  Innovative and effective  Share lea

39. Slide 39: 3. World Class Supply-Chain

    3. WORLD CLASS SUPPLY-CHAIN SUCCESSFUL INDEPENDENTS

40. Slide 40: Our Capabilities Continue to Grow and Evolve

    Our capabilities continue to grow and evolve Focus on lowering logistics CODB Automation Phase 3: - Full Case Pick Automation Phase 2: - Split Case Pick Automation Phase 1: - Miniload System Network design NDC/RDC Mega centre in each region Technology through One system, One way Voice & Put-to-light

41. Slide 41: Strategic Priorities for Supply Chain

    Strategic priorities for supply chain 1. Better align our supply chains to the needs of retail customers and suppliers 2. Continue to optimise “Cost-to-Serve” equation through operational excellence 3. Ensure a safe work environment whilst reducing reliance on manual handling through investment in a

42. Slide 42: Aligning Our Supply Chain to Deliver Benefits

    Aligning our supply chain to deliver benefits CURRENT SUPPLY CHAIN TRANSFORMING TO Food & Liquor Hardware & Automotive Fresh & Daily 40

43. Slide 43: Investing in Automation

    Investing in Automation  Deploying technology in 3 operational areas:  Split case and single pick goods-to-man Execution  Robotic full case automation picking – Project Mustang  Inbound delivery management  Cost reduction Metcash  Regulatory compliance Benefits  Improved productivity  Higher

44. Slide 44: Automation – Full Case Pick (Project Mustang)

    Automation – Full Case Pick ( Project Mustang) Pick Rates per Hour 160 625 Current Future (Manual) (robotic) Full case automatic storage, retrieval and picking technology Using robotic technology Capable of 150,000 picks per 16 hour day Holds 300,000 cases, 1.5 days inventory 42

45. Slide 45: Automation – Split Case Pick

    Automation – Split Case Pick  Single pick and split-case Goods-to- Man automation technology  Capable of 85-100,000 picks per day  Supports convenience strategy  Perfect technology for Single Pick & Deliver, B2B or B2C Pick Rates per Hour 250 675 Current Future (manual) (automated) 43

46. Slide 46: 4. Supporting Independents

    4. SUPPORTING INDEPENDENTS SUCCESSFUL INDEPENDENTS

47. Slide 47: The Metcash Training Academy

    The Metcash training academy METCASH CENTRE OF EXCELLENCE NEW BLOOD RETAILERS EXISTING RETAILERS INTERNAL TALENT STRUCTURED TRAINING & FORMAL ASSESSMENT SPECIFIC TO PILLAR DEVELOPMENT  Established competency  Standardisation and  Retail management skills & assessment centralised best practice exe

48. Slide 48: Digital Strategy - Deliver Leading Digital Experiences

    Digital strategy - deliver leading digital experiences 1. Fix the Basics 2. Invest in Growth 3. Sustain Growth  Align strategies across pillars  Develop retailer specific  Innovative retail  Select common solutions digital service offering technologies  Aggregate retailer loyalty  Localise, cu

49. Slide 49: Activity Is Structured Around Five Work Streams

    Activity is structured around five work streams OBJECTIVES ACTIVITY  Build brand equity through digital  IGA Valentines Day campaign named by Brand channels, extending consumer reach Twitter as “Best in Australia” engagement and relevance  Managed web pages for 915 stores  Transform culture, put

50. Slide 50: Financials

    FINANCIALS SUCCESSFUL INDEPENDENTS

51. Slide 51: Capital Expenditure

    Capital Expenditure TOTAL SPEND NEXT 5 YEARS KEY COMMENTS Maintenance  Approximately inline with D&A  In line with previous years Capex  MFG Transformation (~$100 – 125m)  Store refurbishments  New stores  Store buybacks  Supply Chain (~$160 – 180m)  DC automation  First Project Mustang to

52. Slide 52: Funding Requirements and Capital Management

    Funding requirements and Capital Management  Strategic review & transformation plan has identified the need to invest in the core business over the next few years  Metcash has delivered a high dividend payout over the last few years (consistent with its philosophy of returning funds to investors i

53. Slide 53: Metcash Debt Maturity Profile

    Metcash Debt Maturity Profile  Refinance of the A$400m Tranche of Metcash Debt Maturity Profile (at 17 March 2014) ¹ Syndicated Facility (Core debt) maturing 600 December 2014 Weighted Average Maturity = 3.2 years  Completed in March 2014 500  Two new tranches: A$200m maturing 400 June 2018 (FY19

54. Slide 54: Gearing, Cash Realisation Ratio & Interest Cover

    Gearing, cash realisation ratio & interest cover  Metcash will target strong financial metrics through the MFG transformation 180% Gearing 167.9% 9.0  Gearing (preferred target <40%) to ‘spike’ in FY15 Cash realisation 8.28 Interest Cover 8.23 but then improve with earnings 160% 8.0 7.29 7.34  ‘M

55. Slide 55: Summary

    Summary  Near term Opex investment peaking in FY15 will be reflected in FY15 earnings  Significant capital investment over 5 years - $575-675m causing a spike in gearing in FY15  Prudent capital management solutions including working capital initiatives, reductions in dividend payout ratio and on

56. Slide 56: Wrap-Up

    WRAP-UP SUCCESSFUL INDEPENDENTS

57. Slide 57: Path Forward Is Strong

    Path forward is strong OUR PURPOSE: SUCCESSFUL INDEPENDENTS 55

58. Slide 58: Thank You

    SUCCESSFUL INDEPENDENTS THANK YOU

Metcash — Investor Day (March 2014) on 6ix