Metcash Limited

Good day and thank you for standing by. Welcome to Mathcash 2026 Half Year Results Briefing. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask your question during the session, you'll need to press star 11 or your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Doug Jones, CEO. Please go ahead.

Thank you, operator, and good morning, and welcome to the Metcash Limited FY26 half-year results presentation. As noted, my name is Doug Jones, Group CEO, and I'm joined this morning in Sydney by Deepa Sita, Group CFO, Grant Ramage, Food CEO, Kylie Walbridge, Liquor CEO, and Scott Marshall, CEO of the Total Tools and Hardware Group, as well as Steve Ash, EGM Investor Relations. Before I go any further, you'll no doubt be aware that this morning the ASX has a technical issue uploading certain documents to their public site. This affects all companies and not just us. We lodged all of our release statements, our financial report, our dividend declaration and our presentation this morning just before 9am. All of those, except for the presentation, were released by the ASX. on their side shortly thereafter. We have confirmed with the ASX that because all price-sensitive information is in the market, we may proceed with this call. I'd like to begin by acknowledging the traditional custodians of the land from which we're all connecting today. I'm in Wala medical country and I pay my respects to elders across country, past, present and emerging. As you know by now, our purpose guides our strategy and is an integral part of our culture. As I said at year end, the contribution to communities by independent retailers across Australia is well documented and is something we're all proud of. The idea of making a meaningful difference in the communities our networks serve and operate in is part of our DNA. At the same time, we're energized by the opportunity to win alongside independents. This is a great time to be in partnership with independents, and we recognize the advantage of strategic positioning that this provides to support sustainable and meaningful value creation for our shareholders too. It's also a good time to reflect on our updated aspiration, purpose, and values that encompasses the strong, balanced partnership that we enjoy with independent retailers. And on this basis, I'm pleased to share that our new purpose statement, winning with independence, is now live, as well as our updated aspiration and values. We believe these reflect the nature of that partnership and our ambitious vision for the future. We continue to hold dear the belief that independence are worth fighting for, and we have developed, in consultation with our engaged teams, an updated set of values that underpin that aspiration. Everything we do is focused on driving our flywheel. It remains the manifestation of our competitive advantages and of how we create value for independent customers, shareholders and suppliers, more and more of whom are selecting us as their route to market partner. Our flywheel is also the heart of the platform from which we can grow our services to independent businesses across Australia. And it forms the foundation from which we can move closer to the shopper and through the value chain. These results are what I would call solid, but behind our own expectations. But that simplistic view belies the many, many moving parts that make them up, including the trading conditions that you've heard about from many of our competitors. This year, we've maintained good momentum in the core of our business, and despite the challenging conditions, our independent networks remain healthy and confident. And the strategies of each of our pillars is delivering the results that you'd expect in those markets. Food is now a highly diversified and resilient business and has again delivered strong earnings growth. Once again, liquor has won market share. While improvements in hardware and tools continues, we are seeing sustained signs of market recovery. TTHG earnings, excluding once-off strategy and integration costs, were in line with last year. Strong earnings and EBITDA leverage has been founded on disciplined operational and strategic execution as evidenced by our core operational metrics, those being delivery and logistics performance measures, which are high and trending in the right direction. As you know, the tobacco decline has accelerated, fueled by emboldened illicit operators and even more changes to the regulations. That said, we are starting to see a ramp up at state level in both practical legislation and enforcement. It's certainly too early to claim any sort of victory, but it's pleasing to see at last some concerted effort by state authorities. In the face of all this, costs and working capital were well managed, and as I noted earlier, we're continuing to win new suppliers into the Metcalfe distribution networks. I'm delighted to have delivered the first ever cross-pillar consumer-facing program this year in big family, big prizes. Not only did this drive engagement with shoppers across our brands, it provided our suppliers a new campaign and trade marketing tool and galvanized our own team and network of independent retailers who were incredibly positive about being part of a network of over 3,000 family-founded stores. The family-founded concept with its associated logos and brand iconography is now firmly launched and available to support further executions. In Horizon, I'm pleased to share that we've completed the core solution build phase, and we're now into testing with the first deployment of the solution scheduled for June next year and completion by the end of 26. We continue to balance carefully between cost, time, risk, and quality, prioritizing the last of these. As of right now, the sorted platform on an annualized basis is almost a 4 billion B2B digital marketplace. This follows the migration of all ALM states except New South Wales and Queensland onto the platform. Once those two states migrate in January next year, on an annualized basis, Sorted will be doing around $6 billion, representing over 30% of group revenue. This is a significant and material modernization and transformation of our wholesale business, and one that offers exciting new growth opportunities. At the same time as delivering on our core business priorities, we remain well-positioned with attractive growth prospects. We've made good progress in the integration of both Total Tools and Hardware Group, as well as the Food Service and Convenience Business Unit, with a high-caliber TTHG leadership team already in place. The recovery in the building market remains an attractive opportunity that we're well-placed to take advantage of. Our localised retail media build-out is on track, In summary, we remain well positioned for continued structural growth within food and liquor, the essentials part of our portfolio, and for the recovery we see coming in tools and hardware, the more cyclical part of our portfolio. And we have the balance sheet flexibility to pursue our growth plans. As I noted a moment ago, there are many moving parts in our business, and to understand where we are in the journey requires we step back a moment and take a longer view. The reality is that this has been another period of disciplined execution and strategic progress, But it's also true that this operating discipline and focus on our core business imperatives, together with the strategic decisions taken over the last few years, have not only improved that core business, but have put us in a position to take advantage of where we think the market will be in the next few years. The improvements in the core are free proof points, and I'd start with the improvement of 22% uplift in EBIT and 34% uplift in cash earnings using EBITDA as a proxy. The food pillar is a great example of a business that is of a higher quality at its core, as well as being bigger and more diversified with more growth options. In the face of a massive and unprecedented decline in our largest category, earnings have grown consistently. This is down to both strong execution of core wholesale and logistics functions, as well as the choices to diversify the business. by not only improving the IGA value proposition and reducing reliance on tobacco, but at the same time reinvesting in Campbell's and Convenience to create the market leader in the petrol and convenience market and entering the food service market through Superior. The results of the consistent improvements in the core means that despite the most competitive grocery market in years, IGA itself is more competitive and relevant than ever, and at the same time we are diversified and more resilient than ever. I receive many questions about liquor consumption patterns in my meetings with investors, and I respond the same way each time. The LM Channel strategy of a diverse, balanced focus on our banner retail, contract, and on-premise customers provides unmatched scale and a natural hedge. And our strategy of reinvesting in our flywheel to keep our customers competitive and improving the shopper value proposition means that today our strategic advantage is as strong as ever. And this is why I believe there remains further growth potential. The evidence of the network's competitiveness and relevance is in the market share gains. The addition of new customers to our networks and the choice by new suppliers to come into our DCs. The current earning headwinds are the result of margin and cost pressures in a competitive market where volume growth has to be earned. The growth of the hardware and tools pillar has been delivered through a strategy that saw Metcash acquire Total Tools Holdings and then implement the plan honed in IHG of investing in retail alongside our independent partners. Though the tailwinds of the pandemic undoubtedly helped, Total Tools is now a $1.3 billion leader in a category ideally positioned to serve the tradie in a market that needs to build a million homes in the next five years. While we're seeing early signs of market improvement, as I said in June when we announced the formation of the Total Tools and Hardware Group, we're not waiting for the clouds to part. We're trying to make our own weather. The business is in better shape than ever and is ready for the uplift in market conditions that many believe is inevitable. Project Horizon is moving forward with deliberate and concrete steps and we have good plans in place to get it done. We're further modernizing and strengthening the core through the expansion of Sorted, which, as I said, by early 26, when the two final ALM states are migrated, will be one of the largest B2B marketplaces in the country, if not the largest. This should support growth in our core and adjacent markets and talks to our digital leadership in the B2B space. Finally, the Metcash Retail Media Network build-out continues on plan. We're installing assets at pace and steadily building the supporting tech stack, and have already executed more than 270 campaigns. Before leaving this slide, I also want to point to the improvements inside which aren't always visible to the observer. Our operating discipline, our teamwork, and our alignment are stronger than ever. As I talk about our portfolio through the lens of sector participation, I want to again remind you of the strategy of steadily rebalancing the portfolio of revenue and value drivers. At year end, I said that Metcash is often a misunderstood business and that assessing it as purely a wholesaler materially underestimates both the quality of the business and the opportunity. It's most helpful to understand the balance of the group as a wholesaler, retailer, distributor of food and liquor to the on-premise and out-of-home market, and more recently, as a franchisor. and secondly, through a deeper understanding of how the shape and balance has changed in recent years, and as you can see, continues to change. In the first half of this year, the contribution to total revenue from wholesaling has continued to moderate and now stands at 72%, down from 74% last year. We continue to think about the idea of winning with independence through the lens of operating businesses alongside them. We've done this for a long time now in hardware and total tools, and we've signaled our intent to do the same in food and liquor. Each revenue model lets us tap into new markets and allows us to broaden our business goals beyond wholesaling. And as I said then, at the heart of our flywheel is our logistics capability, and at the heart of our business as a platform to support and win with independence is our wholesale business. But neither of those are the full extent of the Metcash Group, nor of our ambition. Turning to the financial overview, excluding tobacco, sales grew by a pleasing 4.5% in the half, and were still positive 0.4%, even including tobacco, to a total of $9.6 billion. As I noted earlier, EBITDA was strong, up 2%, or 4.3%, excluding the one-off integration and strategy costs, which we called out at the recent AGM, and which are included in underlying earnings. The group delivered $240.2 million of EBIT and $126.7 million of underlying earnings, or 11.5 cents a share. Cash performance was again strong, as headlined by the almost 60% increase in operating cash flows leading to debt leverage ratios at the lower end of the target range and underlying the strong balance sheet. The board has declared a fully frank dividend of 8.5 cents per share. Turning to the pillars now, It's pleasing to see revenue growth excluding tobacco in all pillars, sustained in food excluding tobacco and in liquor, and accelerating in hardware. Remember that Superior was included for just five months of last year. I noted the cash performance earlier, and it's good to note EBITDA up 2%. Excluding $8.3 million of one-sort integration and strategy costs, group underlying EBIT for the half was up 1%, and group EBITDA up 4.3%. Before I talk to the food slide, the keen eye among you will notice that there's less data and information and more focus on the core strategic points that we want to make on these slides. You can rest assured that all the data that we've always provided is available in the appendices at the end of the slide pack. As we did at year end, we've also provided updates on important strategic initiatives including Horizon, Retail Media and Sorted, as well as further information on our ESG progress in these appendices. But back to food now. I'd really do want to highlight the continued competitiveness and relevance of the IGA offer. The market hasn't gotten easier and competitive intensity has, if anything, increased. Despite that, our price competitiveness has continued to improve and this has underpinned an improved rate of growth in the second quarter. The targeted extra specials promotional program, which is focused on large stores and which recently expanded from 75 to 95 stores, is showing strong results. Average shelf prices across all 249 large IGA stores are now at or below the majors. I'm sure you'll appreciate the significance of this, more so in the current environment. Both Campbell's and Convenience and Superior continue to grow. In Campbell's and Convenience, we're winning new customers and growing our business with existing customers. I described it as a reinvigorated business in the end results, and we're seeing continued evidence of this. This business is actually growing tobacco sales as the preferred route-to-market partner for tobacco suppliers. This is the manifestation of a desire to control what we can, not waiting for someone else to change our fortunes. The growth in Superior increased through the half in a highly competitive market, and I'm pleased to have won the Coffee Club contract, which started at the beginning of the second half. Food earnings grew by 9.8% at the EBITDA level and 3.6% at the EBIT level. Higher depreciation and amortization is driven by the new DC and Chaganina, as you would have seen in the second half of last year, as well as the amortization of superior customer contracts and right-of-use assets. EBIT growth was 6.1%, excluding one-sort strategy and integration costs. EBIT margins were up 10 basis points on the back of an improved product mix away from tobacco and an increased contribution from food service and convenience, even including those one-sort costs. The liquor market has been described as lumpy in the half, with the weather in New South Wales not helping things, and is also characterized by an increased retail competitive intensity that we had expected. The IBA and ALM contract retail customers continue to deliver a competitive, relevant, and convenient offer that differentiates them in the market and has allowed them to continue to take market share from their more formal competitors. It's pleasing that we've seen an acceleration of sales to on-premise customers too. There have been several key wins with our customers in this half in the renewal of the LiquorStax contract and the conversion of the Red Cape Group from contract to the IBA banner group, which are standouts, and reflect the confidence that those important partners have in our ability to help them win in the market. In terms of key strategic initiatives, the Platinum Growth Program continues to deliver results and we've recently completed the acquisition of Steve's Liquor Warehouse Group, and these sales and earnings will be included from the second half. I spoke earlier about Sorted, which is now live across all ALM states, except New South Wales and Queensland, which will be transitioning in January next year. Earnings are impacted by $1.5 million of once-off integration and strategy costs, flat sales volumes in a declining market, inflationary cost pressures not offset by volume growth, margin pressure in low inflationary environment, and DNA related to the Chaganina DC and digital investments in our supply chain. We're responding in all areas, including through disciplined cost and productivity programs, continued IBA growth, winning share of shopper wallets in the retail market, and bringing more suppliers into the network. EBITDA is a proxy for cash earnings. Excluding one sort of cost shows a very small decline and highlights the impact of the steps we've taken. I'm pleased with how the team has both managed costs and still gained share in challenging trading conditions. During the half, we announced the merger of the Independent Hardware Group and Total Tools to form the Total Tools and Hardware Group. I'm pleased and grateful for the way in which our team members have continued to deliver for their customers through these changes. They've continued to operate with discipline and trade with hunger in difficult markets and times of change. In our business, we prize the ability to hustle, and these teams have certainly done this. As you can see, both hardware and total tools are in growth, and this has accelerated in the second quarter. It's pleasing to note that building supplies, builders' hardware, and timber are categories that are now in growth, and that total tools delivered growth in all three of their key models, franchise, exclusive brands, and retail store sales. Earnings in the pillar are most impacted by trading conditions in Victoria, New South Wales, and Tasmania. Again, you'll be interested in what actions were taken. We have a high caliber leadership team in place and continue to refine our offer through range and pricing reviews in both hardware and tools to meet the needs of our core trade and professional customer in both businesses. Mitre 10's low prices nailed down promotional program is now well settled and delivering pleasing results. We've refocused our private and exclusive brands program and we see more upside here. The cost-off programs that have been in place for a few years remain, and we continue to balance this with making sure we have the capacity to serve our customers. We're also seeing that some of the improved market trends were sustained into the half, and I'm pleased that housing starts have now returned to growth at a national level, with sustained strength in WA, South Australia and Queensland. The Frame and Trust pipeline is full in Queensland and building in other states. EBITDA, excluding one-sort costs, was up 2.5%, underpinned by the improved sales performance. I'm particularly pleased that excluding these one-sort costs, the business returned to positive EBIT growth and leverage in the second quarter. I'll now hand over to Deepa for her financial review.

Thank you, Doug, and good morning, everyone. I'll start by presenting a high-level overview of the financial performance for the first half. Disciplined execution continues to drive strong cash generation and sustained profitability, despite the ongoing market pressures. Maintaining robust operational and financial management remains central to the strategic framework, ensuring we are well positioned to adapt to changing external conditions. The group's robust cash performance is evidenced by a three-year rolling cash realisation ratio of 106%. Given the timing and seasonal effects of period-end CRR results, the three-year rolling measure remains the most meaningful indicator. While certain working capital timing differences are anticipated to reverse in the second half of the year, we project that the three-year CRR will remain at the upper end of the previously guided range of 80% to 90% by year-end. Balance sheet flexibility is maintained, with the debt leverage ratio positioned at the low end of the guided range of 1 to 1.75 times. As Doug mentioned, the Board has declared a final dividend of 8.5 cents per share, reflecting a moderate increase against the annual target payout ratio. The dividend reinvestment plan remains in place, with no discount applied. The row fee at 20% reflects the short-term impact of business acquisitions, ongoing investment in long-term enablers, as well as the softer earnings. Turning to capital management, this half's outcome reflects a consistent and disciplined application of the capital management framework. The operating cash flow for the half amounted to $262 million, underpinned by effective cost control and diligent working capital management. Capital expenditure and M&A investments amounted to $104 million, with a portion allocated to the acquisition of Steve's Liquor. The remaining funds were allocated towards reinforcing core business operations and advancing key priorities, including technology upgrades, network expansion, and growth initiatives. The year-on-year variance mainly reflects last year's $400 million investment in business acquisitions, most notably the purchase of Superior Foods. The $126 million decrease in net debt primarily reflects robust operating cash flows and timing of investments as the business continuously evaluate potential investment opportunities. The interim dividend of 8.5 cents per share reflects a payout ratio of approximately 74% underlying impact. The key dates for the dividend and DRP are provided in the appendix section of the presentation. The moderation of ROFI was expected, and as mentioned, is primarily due to the short-term impact of business acquisitions, continued investment in long-term enablers such as technology and supply chain, and a softer trading environment. This slide provides an overview of the group's P&L performance and other key financial highlights. Revenue and EBITDA have remained steady, supported by a diversified business model. Excluding tobacco, revenue growth has been achieved across all pillars. EBITDA growth is reflective of solid underlying cash generation and operating leverage within the group. The depreciation and amortization for the first half of FY26 is in line with the second half of the prior year. The increase relative to the first half in the prior year reflects the addition of new assets such as the Traganina DC, which became operational mid-period in the prior year. Additional uplift also arose from the Superior Foods acquisition and new leases, noting that Superior Foods was only consolidated for five months in the first half of last year. As highlighted at the year end, the finalization of the Superior Foods purchase price allocation in the second half of FY25 also increased customer-related amortization. Notwithstanding the increase in depreciation and amortization, EBIT before strategy and integration costs reflects a modest year-on-year improvement and underscores the company's continued emphasis on cost management as well as operational efficiencies. The net finance cost for the half amounted to $60.1 million. The year-on-year increase is attributable to the timing of the Superior Foods acquisition during the first half of last year. Looking ahead, we anticipate the higher average debt utilization in the second half, which will align with peak trading periods as well as planned investment activities. Assuming interest rates remain unchanged in the second half, we expect the full year finance costs to remain in line with previous guidance of between $120 and $125 million. Significant items are of the same nature as those disclosed in the prior years, and further details are available on the slide as well as in the financial report. The year-on-year change in underlying EPS at 11.5 cents is largely attributable to the one-off integration and strategic costs which are reflected within EBIT. Excluding these costs, underlying EPS is broadly in line with the prior year. Strong operating cash flows combined with considered capital investments reflect Metcash's disciplined approach to cash management, enabling ongoing expansion and growth while preserving the group's financial resilience. Capital expenditure continues to be carefully evaluated in line with our capital management framework. FY26 capital expenditure, excluding acquisitions, is expected to remain in line with previous guidance of approximately $200 million. As in the prior years, we will provide future CapEx guidance at the year end. The group retains balance sheet flexibility and remains well within the parameters of its capital management framework. Networking capital closed at $430 million, with the increase in inventory levels supported by favorable supplier funding ratios. The increase in inventory was primarily driven by the strategic uplift in tobacco stock, which is fully funded through accounts payable and supplier trade finance at no cost to Metcash. Average working capital days remain low at 13.2 days, reflecting our ongoing focus on working capital efficiency and performance. Metcash maintains a healthy, well-balanced and carefully managed debt maturity profile with total facilities of $1.56 billion. Undrawn facilities of approximately $860 million provide the flexibility required to manage net working capital fluctuations throughout the year, both intramonth as well as seasonally. Closing net debt was approximately $600 million, resulting in a DLR of 1 times, which is in line with our target range of 1 to 1.75 times. Given the fluctuation in net working capital throughout the year, closing net debt should not be viewed in isolation. Therefore, in line with previous reporting periods, we've again shared the average net debt position to offer a clearer picture of our financial leverage. The average net debt during the first half was approximately $800 million, remaining generally consistent with the preceding two reporting periods. This corresponds to a DLR of 1.32 times. The weighted average debt maturity is at 3.2 years. The facility maturities are strategically staggered within our syndicated structure, enhancing resilience throughout business cycles. The weighted average cost of debt is lower than the prior year, benefiting from the RBA interest rate cuts earlier this year. $295 million remains hedged at a favorable rate of 3.69%. In conclusion, our balance sheet remains strong, with leverage well within target parameters. Our cash-focused culture continues to deliver, with operating cash outperforming expectations and working capital discipline remaining a hallmark of our approach. I'll now hand back to Doug for the group trading update and outlook.