Metcash Limited · ASX:MTS
Metcash — H1 FY2014 Earnings Presentation
68 slides from Metcash's earnings presentation, Dec 2, 2013
Slide 1: Metcash FY14 Half Year Results Presentation (ASX cover letter)
Metcash Limited ABN 32 112 073 480 50 Waterloo Road Macquarie Park For personal use only NSW 2113 Australia PO Box 6226 Silverwater Business Centre NSW 1811 Australia Ph: 61 2 9751 8200 2 December 2013 Fax: 61 2 9741 3027 ASX Limited Company Announcements Office Level 4, Exchange Centre 20 Bridge St
Slide 2: Company Results: Half Year Ending 31 October 2013
For personal use only Company Results Half Year Ending 31 October 2013 0
Slide 3: Agenda
Agenda For personal use only 1H14 Results • Ian Morrice, CEO Metcash Limited - Group Overview • Silvestro Morabito, COO Metcash Food & Grocery - Divisional Highlights • Fergus Collins, CEO ALM - Divisional Highlights • Mark Laidlaw, CEO Mitre10 - Divisional Highlights (Hardware & Automotive) • Adria
Slide 4: Overview
Overview • Continuing tough conditions in Food & Grocery For personal use only • Strong performance in non-food pillars • Strategic review well advanced will be completed in February 2014 • Plan to further update shareholders at an Investor Day in March 2014 • Interim dividend of 9.5 cps being a pay
Slide 5: Financial Headlines
Financial Headlines 1H14 1H13 Variance Variance Notes Fav / For personal use only (Unfav) % Revenue - Reported $M 1 6,644.8 6,335.6 309.2 4.9% Growth in Liquor, Hardware & Automotive Wholesale Sales $M 2 6,579.4 6,278.9 300.5 4.8% divisions offsetting small decline in MF&G Food & Grocery result decl
Slide 6: Food & Grocery
For personal use only Food & Grocery 4 4
Slide 7: Food & Grocery - Financials
Food & Grocery - Financials For personal use only Food and Grocery 1H14 1H13 Variance ($m) Variance (%) SALES ($m) 4,483.8 4,552.1 (68.3) (1.5%) EBITA ($m) 150.7 175.0 (24.3) (13.9%) EBITA MARGIN (%) 3.36% 3.84% • Sales down on pcp reflecting: • Full impact of WA deregulation • Closure of 23 Frankli
Slide 8: Food & Grocery - Continued Retailer investment in development of the network
Food & Grocery - Continued Retailer investment in development of the network For personal use only Branded Stores (IGA – 3 channels + Friendly Grocer + Eziway) FORECAST FORECAST COMPLETED 1H 2H FULL YEAR NO SQM NO SQM NO SQM New Stores 21 25,189 24 20,578 45 45,767 Conversions (1) 2 1,100 1 2,210 3
Slide 9: Food & Grocery - Operational Highlights
Food & Grocery - Operational Highlights For personal use only Store Buy-back Program • 23 completed Buy-backs (and on-sale to better operators) for the half • Retail uplift of +19.6% • Another 21 Buy-back stores in the pipeline Convenience • Roll out of Value Depot brand has commenced • Campbells id
Slide 10: Food & Grocery - Marketing Investment
Food & Grocery - Marketing Investment For personal use only Value Proposition • “How the Locals Like It” • Anh Do engaged as IGA brand ambassador • Range – IGA stocks your Favourite Brands • Community Chest – over $60 million to date • Value – Locked Down Low Prices • 200% Fresh Guarantee – replace
Slide 11: Food & Grocery - Marketing Investment
Food & Grocery - Marketing Investment For personal use only Insights • Heavy investment in consumer research and data analytics research Digital • Website redesign – traffic doubled • Facebook page launched October 2013 • IGA App enhanced • Investment in Digital capability in the team 9 9
Slide 12: Australian Liquor Marketers
For personal use only Australian Liquor Marketers 10 10
Slide 13: ALM - Financials
ALM - Financials Liquor 1H14 1H13 Variance Variance (%) For personal use only SALES ($m) 1,538.1 1,272.6 265.5 20.9% LMG Sales 288.1 48.3 239.8 496.5% Like for Like (excluding LMG) 1,250.0 1,224.3 25.7 2.1% EBITA ($m) 24.1 16.6 7.5 45.2% EBITA MARGIN (%) 1.57% 1.30% • Continued strong sales and EBIT
Slide 14: Packaged Liquor Market
Packaged Liquor Market - Packaged liquor rolling quarter volume & value growth vs prior year For personal use only Govt GFC Fiscal Stimulus A$24bn RTD Excise Change = Interest Rate Decrease = Interest Rate Increase Source: Nielsen 12 12
Slide 15: ALM - Operational Highlights
ALM - Operational Highlights For personal use only IBA • Total IBA Sales +3% • Everyday Discounts (EDD) in store pricing program continues to be supported by retailers • Cellarbrations on Premise (COP) and Harbottle on Premise (HOP) strategy performing exceptionally well at +9% on LY • Club Partners
Slide 16: Hardware & Automotive
For personal use only Hardware & Automotive 14 14
Slide 17: Hardware & Automotive - Financials
Hardware & Automotive – Financials Hardware and Automotive 1H14 1H13 Variance Variance (%) For personal use only SALES ($m) 557.5 454.2 103.3 22.7% Hardware 450.0 421.6 28.4 6.7% Automotive 107.5 32.6 74.9 229.8% EBITA ($m) 22.7 15.0 7.7 51.3% EBITA MARGIN (%) 4.07% 3.30% Hardware • Strong sales per
Slide 18: Hardware & Automotive - Operating Highlights
Hardware & Automotive – Operating Highlights For personal use only Automotive • Business continues to perform well • ATAP acquisition completed in May 2013 doubled size of Metcash Automotive adding access to 2,500 independents • Sales $107.5m (1H13 $32.6m) with increase due to ATAP acquisition and A
Slide 19: Financial Insights
'Champion of the Independent Retailer' For personal use only Financial Insights Adrian Gratwicke Chief Financial Officer Successful Independents 17 17
Slide 20: Financials
For personal use only FINANCIALS 1. Balance Sheet Extract 2. Cash Flow Extract 3. Dividends Per Share 4. Capital Management Policy 5. Interest Expense 6. Gearing 7. Put Options 8. Significant Items Successful Independents 18 18
Slide 21: Balance Sheet - Extract
Balance Sheet - Extract Movement 31 Oct 30 Apr 2013 2013 $m $m $m % Commentary For personal use only Increase primarily due to seasonality of the business, mix of business and certain timing Trade and Other Payables (1,631.0) (1,335.6) (295.4) 22.1% benefits, with creditor days up 8.3 from April 201
Slide 22: Cash Flow Extract
Cash Flow Extract 31 Oct 2013 31 Oct 2012 Movement Commentary $m $m $m % EBITDA - Underlying 218.4 228.9 (10.5) (4.6%) For personal use only Decrease due to lower interest rates and good working capital management resulting in strong operating cash Net interest paid (21.6) (27.3) 5.7 (20.9%) flows T
Slide 23: Interim Dividend & Capital Management
Interim Dividend & Capital Management • The Board’s intention remains to return earnings to shareholders whilst ensuring adequate funds are For personal use only available to invest in the business and in growth opportunities • The Board has declared an interim dividend of 9.5cps (fully franked) • D
Slide 24: Interest Expense
Interest Expense 1H14 1H13 Variance Variance % For personal use only $m $m $m Fav / (Unfav) Interest Costs 25.9 30.8 4.9 15.9% Deferred Borrowing Costs 0.9 0.8 (0.1) (12.5%) Discount Rate Adjustments 4.5 1.7 (2.8) (164.7%) Interest Expense (Total) 31.3 33.3 2.0 6.0% Interest Income 4.3 3.5 0.8 22.9%
Slide 25: Gearing, Cash Realisation Ratio and Interest Cover
Gearing, Cash Realisation Ratio and Interest Cover Overview: For personal use only • Franklins acquired in 1H12 for $187.2m which saw gearing peak at 42.2% • Equity raising of $368.2m in 1H13 reduced debt and improved the gearing ratio. As these funds have been deployed on targeted acquisitions, gea
Slide 26: Put Options (on balance sheet/off balance sheet)
Put Options (on balance sheet/off balance sheet) 1H14 FY13 For personal use only Category BS classification $m $m Put options written over non-controlling interests Other financial liabilities 44.2 31.0 Financial guarantees Other financial liabilities 3.1 3.8 Recorded on balance sheet 47.3 34.8 Othe
Slide 27: Significant Items
Significant Items 1H14 1H13 Variance Variance For personal use only $m $m $m % Legal Costs / (Recovery) - Franklins ACCC - (3.5) 3.5 (100.0%) Acquisition Costs - ABG 2.8 2.4 0.4 16.7% Advisor costs - strategic review 2.3 - 2.3 100.0% Significant Items (Before Tax) 5.1 (1.1) 6.2 (563.6%) Income Tax (
Slide 28: Outlook
Outlook • Challenging market For personal use only • Deflationary trading conditions expected to continue • Continued pressure on operating leverage • Finalise Food & Grocery transformation plan • Liquor, Hardware and Auto pillars remain well positioned for growth • FY 14 Guidance (Underlying EPS) •
Slide 29: Questions & Answers
'Champion of the Independent Retailer' For personal use only Questions & Answers Successful Independents 27 27
Slide 30: Strategic Review
For personal use only Strategic Review Ian Morrice Chief Executive Officer Successful Independents 28 28
Slide 31: From the beginning, Metcash has grown strongly
From the beginning, Metcash has grown strongly Davids on the verge of bankruptcy $13.0b Report PAT (RHS) Sales (LHS) For personal use only Acquired by MTS (29 banners, fragmented business) (sales) Sold 100+ coy owned stores, acquired balance 50% of ALM Sale of non-core John Lewis Sell-down of select
Slide 32: Market conditions have put pressure on independent retailers and Metcash
However, in recent years market conditions have put pressure on independent retailers and Metcash For personal use only Competitive Intensity Value Driven Driving Price Benign Macro Shopper Deflation Environment HEADWINDS FOR Soft INDEPENDENT Industry RETAIL Growth Cost Pressures Network Strength /
Slide 33: Acquisitions in recent years have added both sales and earnings
Acquisitions in recent years have added both sales and earnings For personal use only MTS revenue growth is slowing While EBITA is stagnating $20B $700M CAGR: 600 CAGR: 16 CAGR: ’11-’13: ’11-’13: ’08-’11: 2.5% CAGR: 2.5% 6.9% 500 ’08-’11: 8.7% 12 400 inflection 300 8 inflection 200 4 today 100 today
Slide 34: Underlying performance in Food & Grocery has been in decline
However, the underlying performance in Food & Grocery has been in decline For personal use only MFG revenues plateaued Resulting in Operating De-leverage $15B $700M 600 12 CAGR: CAGR: CAGR: ’11-’13: ’08-’11: CAGR: ’11-’13: 6.8% (0.5%) 500 ’08-’11: (3.9%) 10.2% 9 400 300 inflection 6 inflection 200 3
Slide 35: In response, we've initiated a strategic review
In response, we’ve initiated a strategic review For personal use only June (Review Kick-off) Findings to date are encouraging and we remain very confident about the future of independent retailing: • Consumers want a convenient, successful independent alternative to the chains Dec (1H14 • Retailers
Slide 36: Our purpose: Successful Independents
Our purpose: Successful Independents For personal use only Our values Our vision Integrity is the foundation of our values: • Growing our markets and delivering value • Supporting our customers and to our stakeholders suppliers • Distribution and merchandising excellence • Our people are empowered a
Slide 37: Food & Grocery
For personal use only Food & Grocery Successful Independents 35 35
Slide 38: Food & Grocery facing a structural change in the competitive landscape
Despite Food & Grocery facing a structural change in the competitive landscape... For personal use only Duopoly market New entrants Fuel Discounting Sustained food Cost increases Value Driven Shopper price deflation 36 36
Slide 39: The independent channel has clear strengths to build on
the independent channel has clear strengths to build on… For personal use only Independents have ‘right to win’ Unique independent assets % spend on food & grocery by mission • Extensive footprint across all 100% 100% states including local catchments • Convenience proposition – neighbourhood, ‘in/o
Slide 40: Our stakeholders support the need to change
and our stakeholders support the need to change For personal use only Shoppers Retailers Suppliers • Be price competitive and • We need to be more price • Direct investment into give us attractive competitive growth activities promotions • Stock what our • Improve promo tie-up and • Improve quality
Slide 41: The strategic review has defined a vision for MFG
The strategic review has defined a vision for MFG A clear and compelling proposition For personal use only A clear and compelling proposition 1,500 – 2,000 Sustainable Shopper- Stakeholder independent and led support and stores with confident decision investment strong retailers making execution Ind
Slide 42: Six key growth drivers
Six key growth drivers For personal use only 1 2 3 4 5 6 Shopper-led Competitive Compelling Retail Network Strengthen ranging pricing fresh offer excellence investments Convenience • Range • More • Optimise • Store owner • Right banner • Retail growth aligned to competitive standards excellence to t
Slide 43: To be executed progressively
… to be executed progressively Sustain Growth For personal use only Invest in Growth Fix the Basics Phase I Phase II Phase III • Optimal grocery range • New offers and • New, tailored (shopper led) categories formats • Competitive shelf prices • Compelling fresh • Strong, sustainable and promotions
Slide 44: Other Divisions
For personal use only Other Divisions Successful Independents 42 42
Slide 45: Significant opportunity in ALM to grow network & sales
Significant opportunity in ALM to grow network & sales For personal use only • Extend footprint • Convert more stores to Cellarbrations / Bottle-O • Category growth opportunities • Expand omni-channel presence • Continue improvement in retail execution 43 43
Slide 46: Mitre in a strong position within home improvement
Mitre 10 in a strong position within home improvement For personal use only • Trade sector focus • Convert more independents to M10 banner • Invest in sourcing & supply chain efficiencies • Expand on-line / “Click & Collect” • Continue improvement in execution 44 44
Slide 47: Auto provides significant scope for further growth
Auto provides significant scope for further growth For personal use only • Extend footprint • Omni-channel growth • Sector consolidation in trade & wholesale • Synergistic bolt-on acquisitions 45 45
Slide 48: Key enablers of strategy execution
Key enablers of strategy execution include a digital platform, group property approach, retailer sustainability... For personal use only Digital Platform • Competitive omni-channel solution for retailers & consumers • Enhance analytics & insights capability Property • Increased focus on driving mult
Slide 49: Continued investment in supply chain excellence
and continued investment in supply chain excellence For personal use only Efficiencies via Infrastructure Efficiencies Through Technology investment (Composite DCs) investment (Knapp) Flexibility to better serve Reducing cost to service customer needs (Put-to-Light) (World class benchmarked) 47 47
Slide 50: Recap & Next Steps
Recap & Next Steps For personal use only Sustain Growth Invest in Growth Fix the Basics • Extend footprint • Retail store conversion • Expand omni-channel presence • Sector consolidation • Alignment of investment and benefits of strategic Next conclusions with key industry stakeholders (retailers &
Slide 51: Questions & Answers
'Champion of the Independent Retailer' For personal use only Questions & Answers Successful Independents 49 49
Slide 52: Appendices
Appendices For personal use only 1. Group Wholesale Sales – 5 Year Trend 2. Cost of Doing Business – 5 Year Trend 3. EBITA – 5 Year Trend 4. PAT – 5 Year Trend 5. Operating Cash Flow – 5 Year Trend 6. Earnings per Share – 5 Year Trend 7. Reconciliation – Group Results (Reported and Underlying) 8. Gr
Slide 53: Financial Highlights - Group
For personal use only Financial Highlights – Group Successful Independents 51 51
Slide 54: Wholesale Sales
Wholesale Sales Group wholesale sales $6.58bn up 4.8%: For personal use only Includes growth from Liquor LMG contract and ABG/ATAP acquisition 7,000 6,579 6,279 6,069 5,940 6,000 5,612 5,000 4,000 $M 3,000 2,000 1,000 - 1H10 1H11 1H12 1H13 1H14 52 52
Slide 55: CODB as % of Gross Profit
CODB as % of Gross Profit • CODB impacts: For personal use only • Whilst the absolute dollar value of Food & Grocery CODB has declined, the deleveraging impact of the sales decline and deflation have driven up Food & Grocery CODB% • Liquor division delivered an improved CODB% result • Higher relativ
Slide 56: EBITA
EBITA • EBITA decline of 6.3% driven by: For personal use only • Food & Grocery operating deleverage compounded by increased marketing/advertising spend • Offset by improved Liquor and Hardware & Automotive results, primarily from business expansion Food & Grocery result down by $24.3m against 250.0
Slide 57: PAT
PAT 1H14 1H13 Variance ($) Variance (%) For personal use only PAT ($m) - Underlying 1 119.0 121.3 (2.3) (1.9%) PAT ($m) - Reported 98.9 82.0 16.9 20.6% 140.0 Reported Underlying 121.3 119.0 120.0 115.0 116.6 Reduced impact from 112.4 110.2 Franklins discontinued 109.2 operations 98.9 100.0 94.4 82.0
Slide 58: Operating Cash Flow
Operating Cash Flow Driven by a particularly strong working capital result, with • Cash flow from operations of $229.3m some timing benefit For personal use only • Continued improvements in working capital, despite business expansion • Reduction in cash outflows from Franklins discontinued operation
Slide 59: EPS
EPS 1H14 1H13 Variance ($) Variance (%) For personal use only EPS - Underlying 1 13.5 14.5 (1.0) (6.9%) EPS - Reported 11.2 9.8 1.4 14.3% • Underlying PAT -1.9% 16.0 15.2 Reported • Equity dilution impact 14.7 15.0 from FY13 raising -5.0% 14.3 14.4 14.5 Underlying 14.0 13.5 12.3 12.0 11.2 9.8 10.0 c
Slide 60: Reconciliation - Group Results (Reported and Underlying)
Reconciliation - Group Results (Reported and Underlying) For personal use only FY14 FY13 FY14 FY13 $m $m EPS (cps) EPS (cps) EBITA 193.3 206.2 Net Interest (27.0) (29.8) Profit Before Tax and Amortisation 166.3 176.4 Tax (46.6) (53.1) Non Controlling Interest (0.7) (2.0) Underlying PAT 119.0 121.3 1
Slide 61: Group Results by Division
Group Results by Division Wholesale Sales 1H14 1H13 Variance Variance $m $m $m % For personal use only Food and Grocery 4,483.8 4,552.1 (68.3) (1.5%) Liquor 1,538.1 1,272.6 265.5 20.9% Hardware & Automotive 557.5 454.2 103.3 22.7% Metcash Total 6,579.4 6,278.9 300.5 4.8% EBITA 1H14 1H13 Variance Var
Slide 62: Trend Metrics - Financial
Trend Metrics - Financial 1H10 1H11 1H12 1H13 1H14 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 For personal use only Revenues: Total Revenue $m 5,657 5,984 6,123 6,336 6,645 Sales $m 5,612 5,940 6,069 6,279 6,579 Underlying results: EBITDA $m 204.7 221.2 226.5 228.9 218.4 EBITA $m 184.9 199.4 203.7 206.2 193
Slide 63: Trend Metrics - Operational
Trend Metrics - Operational Branded Stores - Grocery (IGA – 3 channels + Friendly Grocer + Apr 10 Oct 10 Apr 11 Oct 11 Apr 12 Oct 12 Apr 13 Oct 13 For personal use only Eziway) Inc 34 Supa IGA 446 449 463 468 475 475 506 513 Franklins conversions Inc 31 Franklins IGA 718 735 734 723 744 735 773 780
Slide 64: Sustainability Metrics
Sustainability Metrics Notes: 1H14 FY12-13 FY11-12 FY10-11 FY09-10 1. LTIFR is the frequency of lost For personal use only time injuries per People million hours worked. (LTI’s x Lost Time Injury (LTI) 71 148 221 222 244 1,000,000 / hrs worked) Lost Time Injury Frequency Rate (LTIFR) 25.9 2. Foodban
Slide 65: Directory of Terms
Directory of Terms Metcash’s Business Areas & Terms For personal use only ALM Australian Liquor Marketers is Australia and New Zealand's leading broad range liquor wholesaler. ALM operates from 18 distribution locations across the country. Larger ‘off-premise’ customers are supplied through the main
Slide 66: Directory of Terms - Financial Terms
Directory of Terms Financial Terms For personal use only Net operating cash flow (not adjusted for significant items) / [Profit after tax pre significant items + Cash realisation ratio Depreciation + Amortisation (tax effected) ] CODB Cost of doing business Gearing Debt / [Debt + Shareholders equity
Slide 67: For additional information contact
For additional information contact: For personal use only Adrian Gratwicke, Chief Financial Officer Phone: 61 2 9741 3248 Fax: 61 2 9741 3027 E-mail: adrian.gratwicke@metcash.com Stephen Woodhill, Group General Manager Corporate Affairs Phone: 61 2 9741 3415 Fax: 61 2 9741 3027 E-mail: stephen.woodh
Slide 68: Disclaimer
Disclaimer This presentation contains summary information about Metcash Limited (ABN 32 112 073 480) (Metcash) and its activities current as at the date of this presentation. The information in this presentation is of general background and does not For personal use only purport to be complete. It s