Preliminary 2014 Metcash Ltd Earnings Presentation

MTS.AX - Metcash Ltd
Preliminary 2014 Metcash Ltd Earnings Presentation
Jun 23, 2014 / 12:30AM GMT 

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Corporate Participants
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   *  Ian Morrice
      Metcash Limited - CEO
   *  Adrian Gratwicke
      Metcash Limited - CFO
   *  Fergus Collins
      Metcash Limited - CEO, Food & Grocery Supermarkets
   *  Scott Marshall
      Metcash Limited - CEO, ALM
   *  Mark Laidlaw
      Metcash Limited - CEO, Mitre 10

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Conference Call Participants
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   *  Michael Simotas
      Deutsche Bank - Analyst
   *  Shaun Cousins
      J.P. Morgan - Analyst
   *  Craig Woolford
      Citibank - Analyst
   *  Andrew McLennan
      Commonwealth Bank - Analyst
   *  Ben Gilbert
      UBS - Analyst
   *  Paul Checchin
      Macquarie Securities - Analyst
   *  Phillip Kimber
      Goldman Sachs - Analyst
   *  David Errington
      Merrill Lynch - Analyst
   *  Grant Saligari
      Credit Suisse - Analyst
   *  Daniel Broeren
      CIMB - Analyst

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Presentation
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 Ian Morrice,  Metcash Limited - CEO   [1]
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 Right. Good morning, ladies and gentlemen. Thank you very much for coming along this morning to what is Metcash's financial year 2014 annual results briefing and presentation.

 Let me just begin by running you through what we're going to cover this morning and who you are going to hear from. I will handover shortly to Adrian to take you through the overall financial headlines. You will see in the analyst presentation there's a significant number of appendices there to break out as much of the background information as we think you need, but obviously we're here to take your questions at the end.

 I'm going to give you a brief overview of the progress against strategic priorities and then pass you through to Fergus, Scott and Mark to take you through the operating performance, as well as an update on particular progress around strategic priorities and in particular from Fergus on Project Diamond.

 So you will have seen our results as they were posted this morning I'm sure before you came in, but we're pleased that the result has come in line with the updated guidance on March 21. You would kind of expect that given the year closed at the end of April, so that's acknowledged. I think what most people are here to hear about is what progress are we making on the transformation program.

 We're pleased with the progress we're making, we're pleased with the momentum that's building, both in the Metcash food and grocery pillar, but also in the non-food pillars remaining -- excuse me -- remaining very active in not only growing the network but also consolidating the various markets we operate in there. So that's a strong feature of this result.

 The operating cash flows, there is some timing effect in there which we're calling out, which will reverse in 2015, but nevertheless it's a good strong performance based on a basis of a strong performance last year, you may recall, so we're pleased with the way that we're managing to create that cash flow to facilitate reinvesting.

 I guess the highlights on the upside are about revenue generation and that coming through from the liquor business. A strong growth in a flat liquor market, particularly in the first half. Mitre 10 again, a story of continued strengthening of the Mitre 10 brand and what it means for independent hardware operators across Australia. Then further consolidation in automotive, which is really fleshing out the third pillar of that automotive strategy into service.

 However the food and grocery results have been impacted by four key things that we're calling out here. Price deflation is pretty much a new normal. Quite a bit of deflation particularly actually in the fresh and produce areas but also in dry grocery as well. Until January, so I guess almost three quarters of the year, we were up against very heavy excessive discounting in fuel dockets you may recall, which obviously has had a corresponding positive impact since that's been capped.

 Another feature of our result is sales growth in what we call charge thru categories and charge thru is a combination of product categories that we choose not to supply to the retailer, but we do provide the invoicing service for the retailer and the supplier so we make it more efficient for them. The charge thru is also a consequence of retailers looking outside the Metcash distribution system to be able to find the products they're looking for and of course that's a key element of our shopper-led ranging program to address that part of the model going forward.

 I think the final point is significant rationalisation of merchandise or particularly inventory and (inaudible) inventory so it's not only a strong inventory result but it's actually been a healthy inventory result, but there's been an impact in getting us there.

 In terms of the numbers overall, that flows through into a 3.2% top line sales growth. Obviously that's aided by some of the acquisition activity during the year and generally speaking, it's been delivered by our non-food pillars continuing to grow the businesses. You can see the EBITA both in absolute terms and in margin percent terms is where the impact of Metcash food and groceries result is most keenly felt. As we flagged back in March 21, we're actually going to invest further in that Metcash food and grocery pillar in the FY 2015 year, particularly on that earnings line.

 The final piece to really pull out of this is the cost of doing business. We actually present cost of doing business as a percentage of gross profit, not a percentage of sales, so important to make that distinction. But again, in looking through that increase in CODB as a percentage, there's almost entirely as a consequence of our shift into non-food businesses, so in other words, the businesses outside food and grocery have a higher margin and a higher cost of doing business. That's why you see a specific shift on that line. I think the rest of it, I will pass over to Adrian to give you more insight on the components of the financial result. Adrian.

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 Adrian Gratwicke,  Metcash Limited - CFO   [2]
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 Thank you Ian and good morning everybody. Okay just before we sort of delve into the detail, maybe just a few points by way of introduction to what you see running through the balance sheet and cash flow. So there are a couple of key themes that run through that I'll keep on referencing on the way through the detail.

 So Ian's already mentioned the -- we've had a weaker earnings performance by MFG but notwithstanding that, really the cash and balance sheet position of the Company hasn't deteriorated at all. The underpinning to that is the working capital performance and that's irrespective of the creditors timing difference that we do call out in the pack. So what you've seen is an improvement in debtors, debtor days, an improvement in inventory, inventory days, and that really has underpinned the working capital performance through the Group.

 I think also there's really just been a very moderate increase in debt. So again, put the timing benefits to one side. When you think about that increase in debt in the context of the acquisitive growth that you've seen Metcash undertake during the course of the year, so AUD127 million worth of acquisitions, as well as roughly around about another [AUD50 million] worth of growth CapEx, and then you see the legacy Franklins rental subsidy and lease arrangements being paid out which is a cash impact to the Group.

 So we've been able to swallow all of that with only a relatively moderate increase in debt, so again, that goes back to that very strong underlying working capital performance. So keep those things in mind as we run through the detail.

 The book, trade receivables as a book, up. That reflects the growth in the book through the acquisitions in MAH and Mitre 10 in particular and masks an underlying improvement in debtor days of 0.4. So the book in MAH and Mitre 10 was up, but actually down in food and grocery and liquor.

 Inventories, so what you see playing out there, AUD10 million increase. That really masks a very significant underlying improvement in food and grocery stock on hand, so somewhere in the region of [AUD80 million]. The offset to that again is the acquisitive growth in the other two non-food pillars, a small increase in ALM.

 Trade and other payables, the primary impact there, so the increase comes from that year-end public holiday timing benefit, so an AUD80 million impact there. We say there that it will unwind in first quarter of 2015. It's already unwound, so it just so happened that the year-end coincided with a public holiday and we pay all our trade accounts immediately we got back to work.

 The movement in provisions -- so this is the -- this is where I pulled out the Franklins lease settlements as well as the ongoing rental subsidy payments. The right way to think about that is roughly a sort of two thirds, one third split of that cost. So that AUD64 million, AUD65 million, most of that is actually in relation -- in the current year, in relation to lease settlements for closed stores. So we won't have that headwind going forward.

 Intangibles reflects the acquisitions again. We call them out there as well as additional investment in IT software. Fixed assets, the increase there primarily relates to Mustang and Knapp in terms of those being the big ticket items. Loans, net-net, so broadly speaking, we lent what we collected or we collected what we lent, whichever way you want to think about it, but that's broadly what happened there through the loans line.

 Assets held for resale, just a small decrease there. It does reflect the final wrapping up of the Franklins corporate stores as well as transference out of fixed assets and into assets held for resale as you transition from a resale development that you're in the process of developing, you hold it in fixed assets and then when it's ready for sale, you transfer it is into assets held for resale. So there's a bit of netting off that goes there.

 Net debt, I've overviewed that up front and I think the rest of it is reasonably self-explanatory. Just to make a point about the put option increase there, obviously the acquisitions that we've undertaken in MAH increased the value of the put option, so from a P&L perspective, that drops out as an expense. So for those of you that delve into the detail of the segment note, that's the explanation for the corporate cost line there, but ultimately it results in an increase in the valuation of that option.

 So that's it on the balance sheet. From a cash flow perspective, you'll see all those themes flowing through again. So cash receipts and payments, the AUD98 million improvement there really reflects the improved working capital position and that has also benefited from that timing difference in creditors.

 Interest I'll come back to because we've got a separate slide on that. Increased tax, prior year was the beneficiary of a refund so that's why the number was lower last year. Proceeds from sales of businesses, last year we sold Foodlink remember, so that was in the prior year number. This year the sale of the North Plympton property happened in the first half so already called that out.

 Payments on acquisition of business assets, again that's Mustang and Knapp as well as the retail development spend stay-in-business capital, so when you add all of that up, that's how you get to the AUD104 million. Loans reflects what we saw on the balance sheet.

 So the next two lines, other proceeds from disposal and the acquisition of associates, the -- certainly in terms of the proceeds, that reflects the sell down of the Franklins retail stores and the acquisition of businesses and associates, that's the acquisitions that we've already referenced, the largest one there being ATAP.

 In terms of the rest of the cash flow, I think it's reasonably self-explanatory. You'll all be aware of the institutional placement we undertook last year. The reduction of dividends, we'll come back to that. I've got a capital management slide. The debt we've spoken about and other payments, the last year number is the remaining purchase of -- or the purchase of the remaining 49.9% of Mitre 10 that happened last year. Those are the primary things going on in the cash flow statement.

 In terms of interest expense, down year on year. That reflects interest rates but obviously the working capital performance of the Group as well, they will have obviously benefited from that through the debt and interest lines of balance sheet P&L. The interest unwinds, previously given you guidance on this in terms of what to expect going forward so I've reiterated that. Expect it to be somewhere in that AUD13 million to AUD16 million range going forward. I don't think an awful lot has changed on that. It really depends on how some of the long dated provisions perform over the next 12 to 24 months, but I think that that range is probably a good one just to make a note of.

 Significant items -- we do break these out in the financial statements as well so this is just to make sure that you do understand what's going on here. So the AUD34.7 million in respect of impairment of retail and other assets, we called that out on March 20 in terms of taking a different view, different approach, to some of the retail activities or retail-led activities that we've been undertaking from a development perspective, and really focusing our attention more heavily going forward on the existing network and refurb activity in particular. Obviously Fergus will talk to that in due course. So we gave a range of AUD30 million to AUD35 million on March 20 and it's come in at AUD34.7 million.

 Strategic review and restructure costs, probably the best way to think about that is roughly two thirds of that is in relation to external advice costs and associated costs in relation to the strategic review. So that's the best way to think about that and the other third is in relation to certain executive management changes, the leadership changes that have been undertaken in the Group over the course of the last six months and the redundancy costs associated with those changes.

 Automotive, again, this is something that we called out on March 20, so this comprises both the acquisition costs of primarily ATAP, but also we've actually sped up a project to rationalise the warehouses that we inherited with that acquisition and a couple of others. We're blessed with a large number of warehouses in MAH and we've decided to advance the project of rationalising those and that's why we've taken a cost in this year.

 Finally, the ATO Audit -- we've taken that as a significant item expense. It's a very old legacy issue as you can see there, dates back to 2005. We settled with the Tax Office not that long ago, ended up in a net refund being paid to the Group, but there was an associated net expense which we've booked as significant. So those are significant items.

 From a gearing, cash realisation ratio and interest cover, this is a theme that we've taken up and run with for that last couple of reports that we've made to the market. These are some of the key ratios that we focused our attention on, so I think it's the right thing to do to talk to the market about those as well. From an interest cover perspective, slightly down in terms of where we were on FY 2013 and that obviously references the weaker earnings.

 From a cash realisation ratio, that's been helped by the working capital performance, the timing benefits therein, so some of that will reverse, so do make a note of that. Obviously all of that flows through into gearing. The gearing stat for the year-end I think is quite good, notwithstanding the fact that we've got that timing difference there. I think even if you were to normalise for that, it's still a good stat in the context of what we've been through over the last 12 months.

 The other point that we make there is just to remind you of we've called out FY 2015 being a pinch year. So you've got the increased impact on MFG from OpEx investment in the transformation program as well as the deployment of capital to drive that program as well. So those two things will act as a pinch year for FY 2015, so some of these metrics aren't going to look as healthy in FY 2015 as they do today.

 Dividend and capital management, again this is something that we flagged at the strategic review. It's been our policy, or the Board's policy, for some time now to wherever possible return earnings to shareholders unless there is an alternative use for those funds from an internal reinvestment perspective, and quite clearly that's where we are now as an organisation.

 The transformation program in food and grocery is something that we have a significant need to invest in at both an OpEx and CapEx level, and so the Board has taken the view that this is the right time to reassess its approach to payout ratio. It's reduced that payout ratio for this year and dividends and it's also previously reintroduced the dividend reinvestment plan, and for this year-end dividend it's also decided to underwrite that to the extent of 50%, depending on the take-up of the DRP. So that's all about making sure that we conserve funds and reinvest those funds where they're really needed in terms of driving the transformation in food and grocery.

 So just a couple of final points, I'm not -- there's a lot of words on the page, I'm not going to read them all out but just to make sure that you do make a note of this, what we have done is we've moved customer contract amortisation which was previously below the line, we've moved that above into the operating results of the Group. We have sent out a notification to you all this morning in addition to posting these results, sent you a notification. That's gone out this morning so please make sure that you do make note of that, adjust your numbers.

 We do give you the benefit of restated numbers in the appendix to the pack. I know it's painful; it's been painful for us as well but I think it's definitely the right and the better approach to deal with this particular cost. It drives it back into the pillars, which ultimately are responsible for these relationships and the acquisitions that give rise to them, so I think from an operational perspective it's the right thing to do.

 Finally, just from a key financial metrics perspective, what you will see us talking to more and more as we go forward is a different set of metrics. We've given you the benefit of those metrics in the appendix. We're not specifically talking to them in this set of results but we will do going forward. So sales growth, profit growth, growth, ROFE, gearing and cash realisation, they're five of the core metrics that we will be talking to as we progress forward, along with other key performance indicators for various parts of the transformation program.

 So that wraps it up for me. What I'll do now is I'll hand back to Ian who will just take you through some of the strategic priority updates.

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 Ian Morrice,  Metcash Limited - CEO   [3]
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 Okay. Well, back on the March 21 we set out for you four strategic priorities and these are the four priorities we're going to continue to report back to the market on as we make progress over the next few years. Obviously our number 1 priority is the transformation of food and grocery, and then it's about the consolidation and sustainable network growth across the non-food and grocery pillars, building our supply chain with world-class as our benchmark and finally it's about supporting independence to be more successful.

 So let me just step through a couple of updates here, starting with the transformation of Metcash food and grocery, obviously the biggest program by far in terms of its importance and its investment level, both at an OpEx and CapEx perspective. But we have been spending the last 12 months or so actually mapping out what a growth-orientated more profitable, sustainable future looks like.

 Now, Fergus is actually going to talk about levers 1 to 5 during his presentation so what I'm going to do is just call out some of the conclusions and opportunity that we see in convenience, which was a sixth lever and we did introduce this back in March but this is by way of building on where our thinking is getting in terms of convenience opportunity.

 Just to put it into context, CSD, which is C-Store distribution and cash and carry, which is Campbells, they account for about AUD1.5 billion of sales for us today, wholesale sales. And it would be fair to say that they are very focused and, as you can see on this chart, the organised convenience sector, 7-Eleven and BP joining in more recent times. And then in what we're calling the food service sector we've been focused on resellers, which is independent operators far and wide.

 But we've identified here an AUD11.5 billion addressable market we believe is in front of us in terms of petrol and convenience and in food service markets, or serving those customers it's important to distinguish between moving into food service and actually servicing the food service customer. In fact, a lot of what the food service customer is looking for is already available in a Campbell's store today. It's actually about how we engage with those customers and present that opportunity. So I'm going to give you a couple of examples about how we're thinking about this.

 First of all we're very well-positioned to go after growth in this segment because we've already got the breadth of categories and the strength of categories as well as the supply chain component largely in place. And of course, we've got that national network of Campbells stores, albeit it's a far reduced network, we still have national reach, either through our distribution centres or through Campbells stores. The key point here I think is that we can remove cost and complexity from the customers that we are seeking to address with our two key propositions, and I'll come on and talk about what I mean by that.

 The first thing is, even if you look at our consolidated and organised petrol and convenience customers, they still have a number of different suppliers who call on their various outlets every day and every week. And the consequence of that is it drives cost into their business, labour cost and administrative cost, with the amount of invoicing and admin that flows through their system.

 We've been able to get some of those customers to look at things in a very different way with us, to give them a genuine total wholesale solution, a one-stop shop if you like. And we've had some very good recent successes; in fact, in the last week we signed up a contract to supply NightOwl in Queensland. NightOwl you may know is a chain of around 60 franchised convenience stores. It's about AUD100 million of turnover. And what appealed to NightOwl and Adam Adams and his team was this total wholesale solution.

 So we can offer them a full suite of categories, including fresh, that actually meet the needs of his franchisees better than anyone else can in Australia today. That's his words, not mine. So he has now awarded us that contract going forward and over the next 12 to 18 months we will move that forward.

 But I think the other data points I would move you to is we've also spent some time overseas looking at other operators in this sector. Musgrave in Ireland and Booker in the UK being two very good examples who are historically very strong cash and carry businesses who have reinvigorated the cash and carry operation by addressing the proposition not at the corner shop owner who is basically a dying breed as we all know, but actually addressing the food service sectors.

 And on this slide here you see how we've broken down the sectors, number 1, and secondly you look at our current market share is incredibly small in all of these sectors outside of resellers. So we're already attracting some of these customers but actually we haven't really figured out what that total wholesale solution looks like that can actually be more attractive to them going forward. So we think there's a very exciting opportunity here for both CSD and our cash and carry business for growth over the next three to five years.

 The priorities, if you split them down, the C-Store distribution business we already have a lot of these customers but the opportunity to grow our share of wallet is significant and -- I talk there about NightOwl as one particular organised customer but if you look at the fuel retailers and talk to 7-Eleven and BP, they're very keen for us to provide more of the solution that they require because we can take cost out of their model and make life easier and simpler for their operators. And from our point of view what that means is it actually shifts us into a far more profitable mix of products.

 We over-index in tobacco as many of you who study the stock will know, substantially over-index, but we under-index in a lot of the high margin categories that we're actually well-placed to serve. So that's one component. The other one is Campbells wholesale, and I'll talk in a few minutes about the digital solution which I think is a critical component.

 But actually it's about ensuring that we target the growth into the segments that actually are more profitable than the reseller segment is dying. So it's a fundamental fact of life that the food service sector delivers more than twice the margin that the reseller sector does on average. And obviously tobacco is a key -- the lack of tobacco is a key component in that.

 So in addition to that, this consolidating the C-Store sector you should read as consolidate the supply to the C-Store sector. So this isn't necessarily about us becoming a C-Store operator, this is about us consolidating the supply to the C-Store sector, whether it's organised or un-organised, and as I said earlier, the attractiveness for operators such as NightOwl who have small chains of stores is that we can include fresh, we can include a wider range of categories than they can get from any other supplier and we can take, genuinely take, admin and labour costs out of their business.

 So we are in a position to give them more frequent just-in-time deliveries rather than taking bulk deliveries from some of the major FMCG suppliers. And that's highly attractive to them; they're not multi-touching the product and they're getting one invoicing system to deal with. So we're already seeing the early fruits of success in terms of pointing our offer to be a more of a total wholesale solution.

 It will take us time to put these capabilities and enablers in place but we're building on a very, very strong foundation. So I think over the next two or three years we should see some -- we look forward to coming back and reporting some good progress against that market opportunity.

 Priority number 2 is the consolidation and network growth, and again we flagged that we see ourselves having a strategic role in industry consolidation for independents. So there are some examples there, Midas in the automotive sector. Adding 89 stores to our existing base of 54 ABS service stores now gives us a very strong platform to actually develop that service business and we're delighted to have brought Midas into the fold to complete, if you like, the three sub-pillars of our automotive strategy going forward. Gays is a major operator under the home hardware banner and we're delighted to bring them across as well.

 And again, in liquor you can see here these are existing customers of ours who were able to convert over the next 12 months or so into a controlled banner under our IBA program. So that's the -- the benefit here is not necessarily more sales but far better execution and far better supplier support and actually strengthening the control banners that ALM manage for the retail distributors.

 Another thing I would say is that we're continuing to drive conversions from other formats, so under-the-radar if you like we're continuing to engage with independent operators who trade under alternative banners to come in and work within our system because we can provide them with better marketing, better cut-through with the consumer, better ranging and better service. So that's kind of the mantra from us going forward. And of course, as Adrian said earlier, DC consolidation was one critical component in the automotive sector in terms of giving people a far better level of service across the different states.

 The third priority is world-class supply chain. World-class is not a boastful statement, it is a statement of intent and it's an aspiration for us to benchmark ourselves against the best operators in the world. And two key initiatives to continue us down that path; one's just gone live which is the Knapp and that's a split-case deployment in the New South Wales Huntingwood facility. You can see a diagram of that on the top there.

 Just to give you a reminder of the sort of step change and productivity here, we're talking about moving from picking 150 cases an hour on a fairly manual basis to 700 cases an hour. So the -- and with less labour involvement. So there's a significant profitability step change there, but more importantly it provides us with the opportunity to deliver more orderly, better organised deliveries for our retail customers.

 Mustang is on track; it will go operational in September. Again, Mustang will step up from about 150 full-case picks an hour to about 600, so a fourfold increase in productivity. And out of that [high bay] warehouse we'll be able to pick about a million cases a week, and that's the capacity of what we've put in. So we've built that with significant growth headroom there in the New South Wales market.

 The two final components on supporting independents, the reason this is a critical priority for us is that in our strategic review we recognise two clear things. One is that for our retailers to compete against their leading competitors in each of the market segments they need a compelling digital solution, and it's simply not affordable for independent retailers to be able to assemble that kind of offer, that digital offer themselves.

 Let me start with Campbells e-commerce there; that's well underway. We actually picked that out as the frontrunner because in fact, again if we look overseas, look at the Booker business in the UK, they have just completed a year in which they've reached almost GBP800 million of sales on their digital platform.

 So they've gone from kind of zero to more than 20% of their business in five years. And quite a chunk of that is growth, because it actually makes it much easier for the customer, whether that we a food service customer or a reseller, to be able to come online conveniently and buy from Campbells. So that is scheduled to go live in the first half, first calendar half of the 2015 year, so early next year.

 The other two components here around retailer digital service offering, we've launched something with retailers calls Metcash One. Essentially what this gives them is the ability to have store-specific web pages where we can load in store-specific promotions and pricing.

 So that gives a real head start to those retailers who are currently -- many are engaged with much higher cost providers to give them that type of functionality so they've got that presence online. And that's gone down very well with retailers because the overall digital and online solution will come along behind that and actually will plug into Metcash One, which is basically the consumer-facing end of webpage and promotional activity.

 The second part, around cross-pillar tracking, that's got a couple of trial underway in the Victoria state. Essentially, this is where we're tracking consumer spend across our different pillars and we're now with one particular group we're now testing cross-pillar promotional activity. So the first thing is to understand whether we can track consumer buying behaviour and the second thing is to then develop that into a value-adding promotional program. So we're testing both of those things and those are reasonably well-advanced. So we are making some headway now in a short space of time actually, on the digital strategy.

 The final piece, which is last but by no means least, is all about up-skilling our retailers, so giving the retailers the resources and the ability to be able to up-skill themselves and their staff, whether it's the store managers or department managers, whether it's the owner themselves in terms of the whole business acumen component. We've already pulled together the training curriculum; it is different as you would imagine across the different pillars.

 However there is a seam of consistency that also sits across the pillars in terms of what are the skills sets and what are the requirements of independent retailers. Now we're into developing that content and partnering with specialists who can help us help the independents help themselves, in a sense. So it's very much an important part of the up-skilling exercise. In addition to the people and additional resources we're putting on the ground to help retailers, this is about training investment that has a significant payback for the individual operator and the staff.

 So good progress on each of these fronts and I'm very pleased in a short space of time that we've been able to do some of the things we've done and that we're getting the cut through with our independents. That's what counts in the end, that the signals we're getting back from the retailers are that this is the kind of assistance and help that they're looking for and it's going to help the whole network going forward.

 So let me move you now across to Metcash food and grocery and I'll pass over to Fergus to take up the story from here.

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 Fergus Collins,  Metcash Limited - CEO, Food & Grocery Supermarkets   [4]
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 Thanks Ian and morning everybody. I'll just take you through -- initially I'll take you through a bit of a top line in the food and grocery financials and as Ian pointed out, up until January this year we did have the fuel issue continuing in the network. We did obviously experience some market share, I don't think we can hide from that, so that was obviously disappointing.

 Obviously grocery deflation continues to impact on the food and grocery numbers and as a result, like for like sales, wholesale sales were down 2.1%. I would add as well, though, obviously visibility with the retailers is actually showing they're actually performing a lot better than that. So while we're suffering, retailers are actually going okay and that obviously creates greater opportunity for us to recover our volume through that network.

 We obviously had a continued closure of the Franklins stores, another 25 closed during the year, and as you'd appreciate as well, Franklins was a very integrated network, so as stores have gone across into independent time, we do experience a lower teamwork score within that particular network. We also had a few refined store closures within the Cornetts and Walters business as well.

 Convenience, as Ian talked about, was slightly down, but again, from the fuel pressure, which obviously the major guys in the market place are now comparing for their sales falls, so obviously it's coming back into our business as well. We did have one store (inaudible) close in December last year, but luckily a lot of the volume or majority of the volume did come across to neighbouring stores. So like-for-like sales are flat on last year.

 Operating highlights, obviously with the like for like sales growth, we didn't experience deleveraging and as Ian rightly pointed out, cigarettes and charge thru are the main drivers of that. Obviously cigarettes is not profitable for the wholesale business. Then obviously with the charge thru growth within the network, that reinforces the whole push within the business to actually rearrange the warehousing stock.

 So while Adrian again pointed out that we did clear a lot of stock through the warehouse, there is a lot of work happening in the business about rearranging the actual stock that both the retailers and the consumers are actually looking for.

 In the network we did have an increased investment in pricing to support the retail network and we did have obviously additional course in development support. Marketing, obviously been a very difficult market and we have invested again in marketing. That obviously includes a course within the price match trial which I'll talk about in great detail in a minute. We talked about the stock holding.

 Ongoing -- I would add as well that the suppliers, this continued strong support from the suppliers, in fact if I would add in my six months in my job that the suppliers are actively looking to invest more within the channel, considering the market they're operating in, but obviously like everybody, they need a return. So there's a lot of positives there coming from the supplier base.

 Store buy-backs continue to be very successful. We had 38 during the year and the minimum return was greater than 10% which is a really strong result. Within Peter Struck's business, he obviously had the BP contract come on board and great integration on that and obviously helping with the volumes through that network.

 Now let's start talking about what everybody wants to hear about, because obviously the room has been very quiet up until now; shopper led ranging. As I pointed out, the mix of sales going through the network is changing and we've probably been slow to react to that. So we're seeing the true charge thrus, we're not seeing it coming through the shared. So again, real focus within the business on actually delivering that change.

 If I talk about private label, which is basically covered under competitive pricing and the shopper led range, we've done a hell of a lot of work in this. We have a new guy heading up, Anthony Abdallah, that particular area and within Diamond, we've actually see up to 25% to 30% sales uplift when we actually price and range private label within the network of the pilot stores correctly. So again, that gives the management team and myself real confidence that what we're actually doing is actually delivering on that.

 We've done a lot of work again identifying what SKUs within that particular range at the moment we need to delete, that it's not really addressing what the consumer is looking for, then identifying what the key growth areas have. I think we explained in March, on March 21, that the markets moved from that good, better, best, we're still at the good bit. We need to obviously re-range back into better and best. I would add as well, and I keep adding this, it's not about massive growth in the private label, it's actually addressing what the consumer is looking for and to continue to support obviously proprietary brands within the network.

 It was interesting today, Peter Pokorny has been with us for nearly three months and it finally hit the press today; what's it say, Sandra Sully with the late news. But Peter obviously has a lot of experience working for two major competitors in the market place and he has been a breath of fresh air coming into the business. A hell of a lot of experience in this and already has highlighted key issues we can address from day one.

 So that's been a great pick up for not just us but obviously our retailers as well. Supply and rationalisation, he's had a lot of meetings with suppliers already. Again, suppliers really want to work with us in this space and so a lot of positivity coming out of that at the moment.

 Retail excellence, we obviously have -- I'll talk about the DSA lever will be pulled, all the different levers at the same time, but we identified in March that we were actually going to go out and recruit 60 new retail consultants both across -- in particular across the fresh area. I can actually tell you that our target for this year was 30 and I'm talking calendar year. We've already got 12 people on the contract and we expect to have 24 of those people in place by the end of July, so that's been really good; a good mix of people from different industries, sorry, different companies within the industry, a lot of experience and it's been a real positive process.

 Refurbishments, the network obviously -- key thing is to reinvigorate the network and I'll talk about particularly Daisy Hill which we're working on as a good pilot. We have developed a funding mechanism and I would add, it really depends on what the retailer needs. It's obviously based on giving a return both to the retailer and Metcash. It is a co-investment, but I can't give you an exact example because every example is different, but it's a really positive story that's been well received by the retailers as well.

 Let me talk about competitive pricing. As I mentioned, the Black & Gold we've seen within the pilot stores that we've had a 25% to 30% uplift. We've done a lot of work since we rolled out the pilot just after Christmas. Over 55% of the reference back is actually achieving a higher than anticipating elasticity. So when we rolled out, and we were very clear at the time, we probably rolled out too big a basket, but the key thing within the pilots was to actually learn what was actually going to happen, down to SKU level.

 We have refined that as we've gone there through the process and again, I think it'll highlight here the retailer GP positive after Metcash price investment and our price investment is actually in line with what we anticipated. So it's a very strong story and I suppose the great thing, we had a meeting with the National Retail Council last Tuesday and they've endorsed that we would actually roll this out to the network, so open enrolment, which again, it's a really positive story.

 I'd highlight on the side, obviously most of you know Fred Harrison. He's basically committed that during the open enrolment process he would actual roll all the Ritchies stores into the program. So if you're going to ask yourself the question, is this actually going to work, when you've got Ritchies lining up to basically roll it out, I think it's a really positive story. Fred's been very supportive of that.

 Obviously during the process now we're going to actually talk to all the other retailers that have the potential to do that from August, so we've got Drakes, we've got Cornetts, so all the big guys, the MSOs, [Romeos]. So it's a very positive story and if there's one thing that I'd ask you to take out of that, the retailers are actually very much behind this program.

 Now I would add to that that obviously during the process we figured out for the smaller stores with a smaller range it was obviously very difficult for them to follow in full the top line price match for the larger stores. So logically what we've done now is we're actually working on a program for a smaller range within the smaller stores to make sure that it's feasible for those stores to line up with this program.

 Let me talk a little bit about what we've learnt as well. We have refined the reference basket as we've gone through because some product didn't have any elasticity in it. As a result, it wasn't changing, so why invest in a price and a product that's not changing. Also, we've had a lot of conversations with suppliers about actually getting investment into this program which again is really positive. It's interesting, from the exit surveys, we've actually strengthened the marketing program.

 I'll actually give an example of this. If you notice on the yellow and red one, which is very much about promotion, it's the real promotion colour, the consumers are actually thinking it was actually a short-term promotion. When we had thousands of products, consumers actually didn't believe that because it didn't have credibility. What the consumer was saying, I don't buy thousands of product and surely a supermarket doesn't have thousands of products, because I only actually buy 50 to 100.

 So by actually changing the program to say hundreds of products, it actually had a stronger, more believable message from our market research. Actually, that then helped us when we've rolled out across the smaller stores, that it actually lines up that we're not having to run two marketing programs. So again, sometimes you just can't explain consumers. I suppose we're all like that.

 So again, some of the things we've learnt as well, from the best packs from the pilot stores, where the stores actually really outperformed even the pilot group was when they actually had someone in the store greeting consumers, explaining the program to them, explaining what we were saying was that on hundreds of everyday products you buy we are basically the same or the best of Coles and Woolworths. That really reinforced within the stores the performance that we've seen. So again, credible market researched benefits from the pilot.

 Now this is Daisy Hill, this is what we talked about again in March about pulling the lever on -- all the levers so it'd be fresh. Shopper led range compelling retail excellence and network investment. Daisy Hill, for those of you who don't know, is about 30 minutes south of Brisbane and I'm sure you'll all probably head there at some point in time.

 Again, the initial -- we won't be finished this till actually mid-July, then unfortunately we won't have the sales checkouts till mid-August, but again, the store has actually shown a small uplift in sales while we've been going through the renovation. Most people will be aware that when you go through renovations, your sales actually come off.

 But it's actually been a positive, so it's a really good story. The guys are working really well with the store owners and we're really having positive feedback from consumers as well, so it's really good. I think consumers always like the fact that you do invest in their store.

 Now one of the key things we worked on here is the shelf productivity tool and let me talk to you about this. I think in every presentation you've got to have something that's been drafted by an economist. So I'll try and explain the logic of the graph. If you look at grocery here, you see obviously where grocery was before and that's a dotted circle and you can see where it's moving to in the grey circle.

 What it's basically saying is as you actually reduce the number of linear metres -- and I'll talk about the specific example of that in a second -- you actually increase the sales. But when you actually arrange specific to what the consumer is looking for and then we talk about consumer of that range, you actually increase the sales as well. When you get fresh right, so you've increased the area of fresh, you increase the sales. But it actually has a halo effect as well across the rest of the store.

 Cigarettes obviously just maintains its current base. But you see fresh, grocery, chilled, frozen and variety as well, by actually specifically arranging for the consumer and increasing the fresh space. You get the halo effect, but you also get a better sales per square metre. Let me give you an example of what I'm talking about here. We talked about in March how we actually over-range in laundry powder. So you think this store in Daisy Hill had nearly 60 different laundry powders and again, very much focussed around the entry to good level.

 So what we've done is re-range the product you see in a much more opportunity for the consumer to up-trade and to better invest, which previously was under-ranged in the store. So what you are trying to do is move the product across the bottom of the graph and increase the sales. At the same time you've actually reduced the space, so you can actually then range additional product, whether it be fresh or whether it be in proprietary brands to actually service the customer needs better.

 So from my point of view, I'm very happy with how the pilot has gone. As I said, the retailers are very much supportive of it. It's been a very encouraging time for the business and I won't be corny and say I've got a full glass of water, but I'm certainly happy to be drinking a glass that's probably a bit fuller than it was six months ago. So thank you. I'm sure we'll have lots of questions.

 I'm going to hand over to Scott now, who is going to through the liquor results. Scott.

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 Scott Marshall,  Metcash Limited - CEO, ALM   [5]
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 Good morning everyone. Thank you. Thanks for your attendance.

 I'll get straight into the financials for ALM. As you can see, we've actually had really good sales growth in a very tough, flat liquor market. So there has been a few contributing factors. Our LMG contract, which you're all aware of, and obviously, the continuation of that. Sales in the second half were slow. But they were relative to the market.

 I think a key callout is IBA's result. So on a like-for-like basis the retail network grew very well year-on-year. There was some specific category and initiatives or strategic initiatives that helped with that growth. We know we want to grow in wine, as we under-indexed to the market. Our plans there have worked really well. We're growing through better ranging and supplier support in those higher price points, which has helped our wholesale network and also the retailers.

 I think the other key factor is we over-index in beer as a network, as independents. We've actually grown healthily in that segment as well, through initiatives and really trying to target those more profitable categories. It's a great performance by our team and our retailers.

 I think the other key callout for us is we've been more market competitive, which is driving traffic to our stores and obviously the ALM wholesale network gets a knock-on effect of that. Our external customer groups have also done a very strong job. They're the controlled contract customers, the controlled marketing groups. They've done really well at holding share in the market.

 That led to the growth in EBITA. Obviously, the key factors are the sales increase and then also the year-on-year performance in cost of doing business. I think in the second half you'll notice some difference or we dropped off slightly. But the only factor there was the new warehouse in South Australia. We had to move to a new premises to manage the volume from the LMG contract and the increased sales. So that's now in the numbers. But if you back that out, it was a very strong performance year-on-year.

 So just getting on to the operational highlights. I think again, store numbers grew within IBA. So that retail network is much stronger and what we're seeing is the conversion and consolidation of the independents into that group, which is making a significant player.

 I've touched on the market competitive offers driving traffic to stores, which was an absolute key initiative that's worked. I think one of the other key things is our pricing strategy in store. We've gone from more of a high/low strategy to an everyday pricing strategy over the last 18 months. We're really seeing bounce back from consumers. They're coming back in their local store and we're getting great supply support through that program.

 I think one of the other key measures that really differentiates us from others in the market is our category management program. As IBA and our retailers, we're the only true liquor customer that manages a shop for the consumers' needs. We don't over-index private label in other categories. We actually plan [around] the store, so we've got the right brands by their right market share in the place that they need to be and again, we're seeing good growth because of that.

 I think our retailers are benefiting from the strategies. But the current trend of buy as you need, so consumers shopping local and really by our stores giving the consumer what they want in the local market, means they are not having to leave the suburbs, which is a contributing factor to the sales growth as well.

 Ian touched on the Liquor Alliance, or Liquor Traders in Queensland, Thirsty Camel. So we are now operating that brand and again, we look to consolidate the network, but add value back though those retailers and give them better standards, more compliance, which in turn gives us better sales for consumer traffic through the stores.

 Our hotel joint ventures. We've bought on two new hotels this year on the Sunshine Coast, being Brightwater and Bellvista, both good pubs. The key there is, though, we've got a stronger retail footprint. So we've got some celebration stores off those pubs on the Sunshine Coast, where we didn't have a footprint before. So that's, we have to remember, a contributing factor for that strategy.

 So I'll just touch on our progress on our strategic priorities and I think, not only did we have a good year in our cost of business, we're forecasting a good year as well. The further automation and the efficiencies we're getting through our sheds is really strong. We're also working with suppliers through the network, to take costs out where possible. ALM premise sales grew this year on the back of work we've done with suppliers in getting that on-premise volume. That's the smaller restaurants, clubs, cafes, back through the network.

 That's some joint programs with suppliers to work on initiatives and taking costs out of both networks. So we're seeing good growth there. We've also improved ordering for retailers. Now through our online portal and our processes and systems for ordering, we're trying to flatten out the discount structure for them to make it not only easier to order, but more efficient for them, so they can hold less stock and have a more normalised everyday price. So suppliers are also being very supportive through that strategy as well.

 I think it -- yes, I've touched on Independent Brands Australia. But IBA in the retail network is very strong and we think the next year will continue to build on that strength, through retailers coming in, in the top tier in particular, through Cellarbrations, the Bottle-O and IGA Liquor.

 What we have seen is the knock-on effect of our market competitive pricing has -- grew foot traffic through the stores. So you can see there in seasonal periods, being Christmas and Easter, we actually grew our customer count significantly. The retailers are obviously executing the strategy well and is keeping customers in the local store.

 Again, I know at our half year announcement we talked about private label. We've really focussed on consolidating that range and ensuring it's what consumers want. We're never going to over-index private label. Private label for us is about having a product there for the retailers and the consumers at the right margin. Our focus will always be on proprietary brands, but we've now got a very good range, which is being supported by the retailers and that's seen growth in private label in all categories for us, which is great.

 We continue to grow and train our retailers. So we've got an online training academy and it's a real focus moving forward, to continually educate them, make them better retailers and ensure they're giving the right offer to consumers. Again, every retailer that goes through that program gives positive feedback and is now going through the layers of their staff and their management structures in their stores.

 I think for us, we're on a good path with our marketing. But moving forward, we're definitely expanding the consumer marketing and ensuring that we're at the right places online, where consumers are looking now. The traditional press ads don't necessarily work anymore. So we're ensuring that we're in many spaces digitally and online and engaging consumers where they need to be, which is pretty much the phones in the pockets these days. So we've got some exciting plans to come and obviously we'll leverage on the Group strategies there, with what we're doing in grocery.

 So that's the update on Liquor. So, happy to take your questions at the end. Thank you very much. It gives me pleasure to pass onto Mark Laidlaw for Hardware and Automotive.

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 Mark Laidlaw,  Metcash Limited - CEO, Mitre 10   [6]
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 Good morning. You know, it's interesting. We can sit up on stage and we can look out at you guys, so few of you had late nights, I can tell. So I'll probably got your full attention now guys, have I?

 We're very happy with the performance of Automotive and Hardware over the last 12 months. The sales results there, 24% up on last year and EBITA 48% up. To the point now where this division is now contributing 9% of Metcash revenues and 13% of the EBITA of the Group, AUD53.5 million that we didn't have some four years ago.

 The sales results are across both divisions. Mitre 10 sales up 10.2%, with 3.4% like-for-like. That growth comes from two main areas, that is trade and that's what's really driven the like-for-likes. Some really pleasing trade growth right around Australia, predominantly in timber.

 The other thing that's helping us grow those sales is the national Joint Venture Network that we now have in place. If we've got a network of 400 stores, 50 of those are now under some form of joint venture relationship. That effectively gives us 12% of the stores, where we have a fairly strong say in how the stores are run, 12% of the stores covering 30% of the volume. That's really working well for our supplier network because it starts to give us compliance, which is the big challenge amongst independents, getting compliance across the network.

 In Auto, I think both Ian and Adrian documented before that a lot of really good acquisitions have taken place in the last 12 months. The number you see there. So we're declaring the number, AUD218 million in Auto, so you can pretty easily take that out and work out hardware is. The other thing that we state and we've stated before, that the Auto division is just sales through the warehouses. We don't have charge back or charge through relationships in the automotive division, which we do, of course, in both food and grocery and Mitre 10 and ALM.

 In terms of the EBIT, also good growth. Mitre 10 we've talked about that before. We're continually driving efficiencies, particularly in the DCs. Mitre 10 has four DCs. We're busy upgrading those to a Metcash standard. Automation has now occurred, so that we've rolled out the same warehouse management system in Derrimut in Victoria, as we do across the food and grocery network. This year we'll upgrade the Queensland Mitre 10 DC to those standards.

 It was also mentioned before, Adrian very kindly mentioned that we have a number of warehouses in the automotive division, which we do and the work started there. Rationalisation has started in Queensland. In fact, we've now gone from five down to two, Paul, and in Victoria four down to three. That continues to -- there is still a fair bit of work to take place there.

 Operational highlights was also touched on. In Hardware our strategy is pretty clear. We continue to want to convert those good, strong independent businesses out there that currently don't have a Mitre 10 brand. We've done that with another 23 stores in the last 12 months and grown the square metres, net. So that's new stores converted. It's fair to say we're losing some small stores. Some small stores are dropping out of the network. They're not going to competitors, but they are closing. But overall, the square metres are growing.

 Ian also mentioned the -- and it's not an acquisition. We've acquired a minority share in the Gay's business. Of course, that's our model. We don't want to own them. We want to take a minority share because we want the families to continue to run them. There is not a better example in the Gay's business, where the two sons run the business, two good guys in their forties, with a lot of ups, so a lot of energy to take the businesses forward. Our main competitor Danks continues to acquire businesses. In the last week they've acquired a business called [Hutchins] from the Fletcher Group, 15 stores. You'd be aware of that.

 That's not our strategy. To acquire a trade business we believe is very difficult, because the trade is all about holding the relationship with the tradies and that's why we believe the joint venture model works soundly for us.

 In terms of automotive, continued growth, nine new Autobarn stores, very exciting now, with the conversion of Malz. That gives a footprint in Western Australia and I think we're up to seven stores in Western Australia now, with the conversion of Malz. We've also mentioned those continued consolidations or acquisitions, ATAP, Partco and now Midas, with 89 service centres, effective from May.

 Very quickly on the strategic priorities, a lot of words on the page there, too many words on the page. What we're all about is, in simple terms, improving the Mitre 10 store standards, continue to hold a very strong relationship with our suppliers because we are very pleased to say we do carry all the big brands in our stores. We need to continue to get our suppliers' compliance and improve their sales. But that's happening at the moment.

 We need to continue to improve the price perception in our network. Whenever we do a survey it comes up. Mitre 10 centre is expensive compared to Bunnings. Bunnings spent millions and millions of dollars actually telling people how cheap they are. We're not that far off, but we have to continue to drive price perception and we have to continue to differentiate ourselves from both Masters and Bunnings, by making trade the true point of difference for us.

 In terms of automotive, again it's the acquisitions, an exciting 12 months continuing to acquire businesses. It is now about getting the supply chain, the DC network, right. It's exciting that Paul and his team are setting up multi-service distribution centres and we've now commissioned new warehouses in both Brisbane and Perth.

 I mentioned another very exciting thing is the trading academy. Ian touched on it. Scott touched on it. A lot of this has come from what we've discovered in automotive. They've really got an excellent trading academy within that business. They train their franchisees very well. They train their retail staff very well. All things that we want are now emulated in the rest of the Metcash Group.

 They've now just launched another trading pillar, where they're training the fitters in the stores and that is great margin opportunities there. What does that mean? That means training people to install audio systems and roof racks and bull bars and we think there is a great opportunity now to grow the margins in the business.

 So in summary, very happy with the year. It's still a very fragmented market in both Hardware and Automotive. There is great opportunities there. But it's fair to say the next 12 months is probably about digesting, consolidating the acquisitions we've made and bringing those new growth businesses, bringing the benefits to the bottom line.

 Thank you. Now I'd like to hand back to Ian to wrap up.

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 Ian Morrice,  Metcash Limited - CEO   [7]
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 Okay, so just a few closing comments from me then. I think the guys have stepped you through the detail, put a bit more colour on to the story that's unfolding, but effectively go forward. We do expect market conditions to continue to be challenging. Challenging for most participants in the retail sector, but independents in particular are under competitive pressure. Having said that, we are very pleased with the progress that we're making, set out on March 21.

 It is early days, so we're always conscious of that. Lots more work to do, but there is a sense of momentum building across the Group, both in the transformation program and Metcash Food and Grocery, across supermarkets and convenience, with a focus that Fergus and Peter are now bringing to that business.

 Also the other pillars continuing to develop our strength and our position for independent retailers and make us the independent retailers' consolidator of choice, in effect, because of what we can offer them back in return. Ultimately, it has to offer independent retailers a better long term return. That's a critical component of everything that we do in the way that we're now looking at the business and how we bring those people across.

 As far as FY 2015's concerned it's under way, obviously. We confirm again that it will be a significant investment year in the MFG pillar. We highlighted back then AUD40 million to AUD45 million invested in OpEx in order to begin to drive a sales led recovery. That's to get our wholesale sales back to a position where we're at or ahead of the previous year but, ultimately, getting back into a growth stage from FY 2016, 2017 onwards and, of course, seeing the earnings profile recover in those out to 2016, 2017 years and beyond as well.

 So that's really confirming what we said on March 21. I'm conscious of the fact there's a lot of interest in that investment program, so you can expect us to continue to keep you informed at the AGM and at the half year results coming up.

 The Group sales for the first six weeks in FY 2015 is in line with our expectations. Someone asked me the question earlier, what does that mean? Well, it's in line with budget and, therefore, there are no shocks or surprises there -- has been -- the marketplace and our performance in it is pretty much as we expected. That's important for just confirming that as we go into the DRP underwrite that we've signalled as well, that that is the case.

 So what I'd like to do is conclude our management comments now and thank you for your attendance and move to questions. What we'll do is, as normal, we'll start with questions in the room. Once those questions dry up or you're finished, then we'll move to the phones. We would like to go for about 30 to 40 minutes. We have a microphone to help the people on the phones hear the questions being asked. So we'll start in the front row with Michael.

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Questions and Answers
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 Michael Simotas,  Deutsche Bank - Analyst   [1]
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 Thanks very much. It's Michael Simotas from Deutsche Bank. Look, I was just hoping to try to understand a little bit better the second half performance in the food and grocery business. So a fairly big margin decline of I think it's about 110 basis points in the second half. You've called out a few drivers. Presumably, price investment wasn't much because the program had only just started. Can you just talk about the contribution of the leverage and also the increased marketing investment please?

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 Ian Morrice,  Metcash Limited - CEO   [2]
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 Yes. I think I'll pass you across to one of my colleagues in a second, probably Adrian, initially. In essence, Michael -- and this was a question from -- going to March 21. There's -- well, how much have we stepped up that level of investment? There have been a number of one-off impacts that we've taken, obviously, in the second half as well. So let me pass you across to Adrian, who'll maybe put more--

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 Adrian Gratwicke,  Metcash Limited - CFO   [3]
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 Yes. I think, probably, the most significant driver of that drop off in the second half was the rationalisation and the stock position in food and grocery. So that's a costly exercise in and of its own right but, obviously, if you're not replacing the stock that you're selling down or, potentially, with a stock writing off, you're not getting the benefit of the uptick on the way through as well. So that was probably the biggest driver, but I think you'll find also we called out that there were a number of above the line impairment charges that food and grocery took during the second half as well, so that contributed to that picture as well.

 I think maybe the point that is worth noting is that the distribution cost of food and grocery broadly tracked sales, so they actually did a very good job of controlling their distribution costs performance, and that was in a marketplace where the majority of participants have seen utility costs increase reasonably dramatically. So they've swallowed that. They've swallowed the sales performance and they've been able to adjust their distribution cost performance accordingly, so I think that's a positive result.

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 Michael Simotas,  Deutsche Bank - Analyst   [4]
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 For those one-off items, do you expect them to unwind in the first half of 2015? Or will it take a little bit longer than that to-- (multiple speakers)

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 Adrian Gratwicke,  Metcash Limited - CFO   [5]
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 No. I think there's going to be an element of continuance with that. That was the point that Fergus called out in terms of there's an ongoing rationalisation of, obviously, exiting stock that you no longer think is the right stock to be holding but then replacing it. You don't do that all within a six month window. It's a more gradual process. I think it would be fair to say that we've chewed off a very significant chunk of that job.

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 Michael Simotas,  Deutsche Bank - Analyst   [6]
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 Okay. And just a last one, is that on top of the AUD45 million OpEx for the transformation program?

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 Adrian Gratwicke,  Metcash Limited - CFO   [7]
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 Well, an element of that is within the AUD40 million to AUD45 million, but it would be on top of. I think the way we're thinking about it is that would be a broadly cost neutral exercise. If that doesn't turn out to be the case then, obviously, we'll have to call it out, but -- because there's going to be opportunities on the up side as well.

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 Michael Simotas,  Deutsche Bank - Analyst   [8]
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 Okay. Thank you.

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 Ian Morrice,  Metcash Limited - CEO   [9]
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 To Shaun Cousins in the second row.

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 Shaun Cousins,  J.P. Morgan - Analyst   [10]
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 Thanks. Sean Cousins, J.P. Morgan. Just a question, Fergus. You noted that the IGA retailers were doing better than the 2.1% decline in the first -- sorry. I mean fiscal 2014. Can you talk about how IGA retailers are doing now, I guess, in the early start of fiscal 2015, particularly given the absence of petrol discounts, which were quite damaging in 2014?

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 Fergus Collins,  Metcash Limited - CEO, Food & Grocery Supermarkets   [11]
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 Yes. Again, obviously, we don't have visibility across the whole network, but I talk to some of the major MSOs -- are actually travelling reasonably well. I talked about BMS previously, when we talked on March 21. They're trading really, really well. So they've done a lot of what we're talking about as regards the Diamond program. I would add as well that we did see a fall off in the next two weeks after the Budget. Consumer confidence did seem to dry up, but I'm certainly very positive about how retailers are trading compared to how we're trading, so--

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 Shaun Cousins,  J.P. Morgan - Analyst   [12]
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 So I mean is Metcash wholesale volumes declining in the early parts of fiscal 2015?

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 Fergus Collins,  Metcash Limited - CEO, Food & Grocery Supermarkets   [13]
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 No. I think Ian pointed out that we're actually on budget. So what I was talking about was--

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 Shaun Cousins,  J.P. Morgan - Analyst   [14]
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 Sorry, what's your budget?

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 Fergus Collins,  Metcash Limited - CEO, Food & Grocery Supermarkets   [15]
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 Well, it's year-on-year. Well, put it this way, I didn't get us off budget. I've got a realistic target. Obviously, it's reflective of what we were trading at last year, so I think the market -- how we're trading in the market, we're very happy with it.

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 Ian Morrice,  Metcash Limited - CEO   [16]
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 I think -- and as I said in my overview comments, Shaun, we're looking to get MFG's revenues at least in line with last year for the FY 2015 year, so that's the way to look at it, I think. That's all.

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 Shaun Cousins,  J.P. Morgan - Analyst   [17]
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 Maybe just in terms of -- just thinking about the utilisation of your distribution centres, one of the things that's come out of this result is the extent to which charge thrus have been more prominent and the extent where Metcash's has changed, where they're not as focused on maximising teamwork score, they're actually after successful independents, which was a pleasing idea.

 But how does that impact capacity utilisation in your warehouse profitability, particularly given the capacity that you're adding with -- in New South Wales, which is a fairly weak state for you relative to other parts of the country, where you're much stronger.

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 Fergus Collins,  Metcash Limited - CEO, Food & Grocery Supermarkets   [18]
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 I'd probably clarify that as well by saying that, obviously, utmost we want successful retailers, but I put the challenge back on my team that we should be ranging and selling more of the products that our retailers are actually looking for. So I'm not walking away from teamwork score and saying it's irrelevant now. It's totally relevant, but it's more a score of how we're actually supporting the retailer base and the end consumer than, previously, the retailer supporting us. So there's a lot of work internally to re-range the warehouse to actually increase our teamwork score.

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 Ian Morrice,  Metcash Limited - CEO   [19]
------------------------------
 And just to add another example that Fergus mentioned, which was the private label, Black & Gold pickups. So one of the main reasons that's driven volume outside of our sheds has been an uncompetitive private label proposition. So we've simply not been competitive at cost or at retail price.

 In the price match, we used that as an opportunity to test that on 950 products. As you can see, 25% to 30% uplift. That's utilisation. The warehouse has got all of those lines stocked, but they've been in decline for three years, at least three years in fact. What we're going to do is dramatically turn that around and rationalise the number of lines at the same time.

 So we're actually going to get a situation where we'll have better turns through our warehouses, but we'll have more picking slots made available for the product that the consumer wants, and understand that the retailer's currently buying outside of our system.

------------------------------
 Shaun Cousins,  J.P. Morgan - Analyst   [20]
------------------------------
 Just finally, just in terms of price match, you noted -- I think you got the quote from Ritchies, that they're all on board with this. Are all your other (inaudible) on board, including -- I think you mentioned Drakes and (inaudible). Are they on board now, and are you expecting them to come on board-- (multiple speakers).

------------------------------
 Fergus Collins,  Metcash Limited - CEO, Food & Grocery Supermarkets   [21]
------------------------------
 The advantage, obviously, Fred had was that he had a couple of stores in the pilot program, so he obviously had a lot more visibility and a lot more understanding of how it was actually working. With the review from the national [council] from last week, they're basically endorsed the open enrolment program.

 We've already started a conversation with Drakes, with Cornett, so we'll actually go out and actually have individual conversations, but there's a lot of positivity in the marketplace. So, obviously, we've kept a lot of the information very confidential, and now we can actually start sharing it with the retailers. So it's a very positive story for the retailer base.

------------------------------
 Craig Woolford,  Citibank - Analyst   [22]
------------------------------
 Good morning. Craig Woolford from Citi. You can tell -- my question's going to be about the health of the IGA network, and you can tell there's a few questions about the teamwork score and the like. Can you just clarify how is the Company now monitoring sales leakage or charge thru? You can obviously keep on top of charge thru that you know about, but it feels like there's been a bigger leakage that you've stumbled across. Can you just clarify how you're monitoring sales leakage through the network?

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [23]
------------------------------
 I'll start, and then pass it across to Fergus. We've always monitored charge thrus. So on a weekly basis we monitor the amount of charge thru activities versus the warehouse withdrawals. What we've seen is an increasing shift over time away from warehouse withdrawals into charge thru.

 So the charge thru sales -- or what we would call direct sales -- are actually up year-on-year, whereas our warehouse withdrawals are down year-on-year. So there's a clear look through of that. It's not something that's come along in recent times. It's been there for quite some time. Did you want to--

------------------------------
 Craig Woolford,  Citibank - Analyst   [24]
------------------------------
 (multiple speakers) --recognising those charge thrus in your sales base? Isn't there a chance that there's also leakage--

------------------------------
 Fergus Collins,  Metcash Limited - CEO, Food & Grocery Supermarkets   [25]
------------------------------
 No, but--

------------------------------
 Craig Woolford,  Citibank - Analyst   [26]
------------------------------
 --outside of-- (multiple speakers).

------------------------------
 Fergus Collins,  Metcash Limited - CEO, Food & Grocery Supermarkets   [27]
------------------------------
 Obviously, previously, we didn't have a great visibility around scan data. Prior to the pilot program there was the full visibility around scan data and not to go and beat up the retailers and say oh, you've got to pull the volume through the shed. It was more so we actually got a greater visibility of what was happening in the marketplace.

 So to be part of price match moving forward, because we've obviously got to make sure -- ensure that the execution is happening at store level as a full visibility round scan -- and I think what we'll do over time is actually get a greater picture what's happening, but it's been happening anyway. So it's just our visibility has probably improved greatly.

 As Ian rightly pointed out, where we're probably losing a lot of sales to direct -- without any benefit to the network -- is on those lower value products that our private label offering didn't address. So I think once you address that you actually fix a lot of the problems from day one as well.

------------------------------
 Craig Woolford,  Citibank - Analyst   [28]
------------------------------
 So when will there be, I guess, an alignment of the sales growth for Metcash from IGAs and the IGA retailers themselves? How long does this drag on as a problem for Metcash versus the IGA retailers?

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [29]
------------------------------
 Well, I think there's two parts to the answer to that one, Craig, because the other piece you were alluding to is the product which, as Fergus says, is now apparent to us from scan data. So the thing that we've done in the last 12 months that we've not done before is look at the scan data coming from retailers to genuinely understand what are shoppers buying that we're not currently stocking. So we've now got an ongoing capability to be able to monitor that on a week-to-week basis that we didn't have before.

 When I came in to this job I think we had about 600 stores on scan data. As I stand here today we're north of 1200. By the time we get up in December I'll be disappointed if we're not a couple of hundred north of that. And it's not just the scan data being made available to us, but it's what we're doing with the scan data; not just to improve the Metcash business, but to add value back to the retailer.

 The question you're asking is what will be the rate of growth of Metcash's sales relative to retail. I think, from our point of view, that's a difficult thing to model and be absolute about because, as we've said, the biggest driver of that is going to be fresh. So price match in the next couple of years will be a significant driver of warehouse withdrawals and wholesale sales but, long term, it's going to be about fresh driving a bigger participation in those stores that get a higher fresh percentage.

 The question for us is how can we ensure that as well as enabling retailers to be really great in fresh, that we are actually a supplier to more retailers in the future, long term. So that's a difficult thing to model further out.

------------------------------
 Craig Woolford,  Citibank - Analyst   [30]
------------------------------
 My only other one was just a clarification about either acquisitions or new business that you've got. There's a few things weaved in the slides about different parts. So there was Midas, Thirsty Camel and the NightOwl business. Was the AUD100 million for NightOwl at wholesale?

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [31]
------------------------------
 Yes. That's a contract that will take time to actually all come through, so we don't get AUD100 million on day one, but it's a AUD100 million business. That is at wholesale level, isn't it, Peter? Yes.

------------------------------
 Craig Woolford,  Citibank - Analyst   [32]
------------------------------
 And what about the revenue contribution from the other -- apart from the Thirsty Camel and Midas?

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [33]
------------------------------
 Well, if you take Thirsty Camel, for example, that's all -- we're already supplying Thirsty Camel. So, as Scott says, what now happens is we bring them into a controlled banner group where we actually drive a far more effective marketing program and better supply support, so it drives more sales through the retailer and, from our perspective, is a more profitable business model for the retailer and ourselves. So we're, in essence, converting pure wholesale sales into retail orientated sales. So that, to us, we know, will be net positive for everyone. As far as Midas is concerned, Paul -- 12 million. Yes, 12 million sales.

 Behind you there.

------------------------------
 Andrew McLennan,  Commonwealth Bank - Analyst   [34]
------------------------------
 Ian, it's Andrew McLennan from Commonwealth Bank.

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [35]
------------------------------
 Andrew.

------------------------------
 Andrew McLennan,  Commonwealth Bank - Analyst   [36]
------------------------------
 I was just wondering, firstly, if you could give us an indication. You mentioned that some of the small stores will have a different pilot program. Can you tell us how significant that will be, maybe by store number or percentage of sales for the total Group?

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [37]
------------------------------
 I'll start, and I'll ask Fergus to comment as well. There are -- including IGA Xpress there are just under 1500 IGA retailers today, and about 300 of those are Express. So you've got about 1200 that are in Supa and IGA. I think the way to think about it is probably the bottom third of the IGA retailers. We're not talking about Express at all in this sense because we don't intend or expect Xpress to be participants in price match. So we're talking about the bottom third of that 1200 IGA/Supa IGAs.

 Fergus, do you want to make any other--

------------------------------
 Fergus Collins,  Metcash Limited - CEO, Food & Grocery Supermarkets   [38]
------------------------------
 Yes. Obviously, the smaller stores, even though there's more numbers, there's obviously considerably less percentage in volume of the network. As Ian rightly pointed out, we've already talked to the IGA Express guys about the offer. Because they're following a full supermarket offer, it doesn't actually suit their model. So we've talked to them about creating a different offer specific for the Express guys.

 On the smaller format supermarket -- so those under 600 square metres -- again, we're looking to refine the basket that -- obviously, it works for the big guys because, obviously, the volume for -- the smaller guys were concerned and told us in two of the stores in the pilot that it didn't actually work, that full reference basket; and more refined, very specific, again, to what their customers are looking for will be tested as part of a different pilot -- sorry, excluding the open rollout. So, again, bigger numbers but smaller percentage.

------------------------------
 Andrew McLennan,  Commonwealth Bank - Analyst   [39]
------------------------------
 In relation to food service, this is a business that you've been in and out of over many years. Obviously, you've got different infrastructure capabilities with, particularly, Knapp. So what makes it different this time for Metcash?

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [40]
------------------------------
 Well, there's quite a lot of differences this time. I mean I think the first thing is that we've already got a business that is well suited to serving the food service market. So we're not talking about buying a food service business or anything like that. We're actually looking at the needs of customers who fall into the categories that were on that chart.

 Looking at the range that we've got in the Campbells cash and carry business and simply aligning our offer to meet the needs of those customers, rather than expecting people to walk in and pick up. It's about actually thinking through who are these customers, how do we reach these customers and how do we make sure we can service them out of the Campbells business. What we're looking to do is replicate what we've seen be pretty effective overseas. The two examples I gave you from Ireland and the UK are well down the tracks in doing this. In Bookers they've got almost 80% of the sales are switched across now into food service as we understand it.

 So that takes time and it needs the capability of the digital platform for ordering and it needs us to ensure that we can provide the one stop solution. But this is about leveraging assets we've already got and it's also about leveraging some customers we've already got, because some of these customers are coming to us already for small parts of their offer. The question is why are they not buying the entire offer from us?

 If we had time I'd get Peter to stand up and tell you his pizza story but we haven't got time sadly. But to cut that long story short we have one particular customer, by way of example, who buys only one piece of his pizza business from us. Let's call it the pizza bases at this point in time, but isn't buying the packaging and isn't buying the other ingredients and isn't buying a lot of the other components that we actually stock.

 Let alone us making sure that our range and our offer has in stock the components that somebody who's in that business needs. They get it from one place, they get it one delivery and they get frequent deliveries every week. So that's the way in which we're thinking about it. We're not thinking about creating a food service business per se.

------------------------------
 Ben Gilbert,  UBS - Analyst   [41]
------------------------------
 Hi I'm Ben Gilbert from UBS. Just maybe for Adrian, just a point of clarification before, when you're talking -- obviously the AUD40 million to AUD45 million step up in OpEx next year, but the other one-offs that you said you were going to be offset by savings, are you referring to Mustang and Knapp savings that are coming through there? Or should we still see benefits from that for FY 2015?

------------------------------
 Adrian Gratwicke,  Metcash Limited - CFO   [42]
------------------------------
 No I think the majority of the benefits that you're going to see, certainly from Mustang, are more of an FY 2016 story than an FY 2015 story. I mean Knapp is up and running now so you'll see those benefits drop into FY 2015. But that would be one example yes.

------------------------------
 Ben Gilbert,  UBS - Analyst   [43]
------------------------------
 So I suppose when we think about the business ex that AUD40 million to AUD45 million of OpEx, a stable margin environment is potentially realistic. There isn't necessarily any -- a lot more (inaudible) operating-- (multiple speakers)

------------------------------
 Adrian Gratwicke,  Metcash Limited - CFO   [44]
------------------------------
 No I think that's -- you've got your base and you overlay the AUD40 million to AUD45 million, I think that's the way to think about it.

------------------------------
 Ben Gilbert,  UBS - Analyst   [45]
------------------------------
 The second one I had, just around the amortisation of customer accounts and bringing that into the reported result now. The trend going forward, is that still expected to be a pretty stable number for amortisation?

------------------------------
 Adrian Gratwicke,  Metcash Limited - CFO   [46]
------------------------------
 Yes and I think what we'll do is, as we transition through this, we'll call it out. So to the extent that, for example, it's increased because of a particular acquisition, we'll make note of that so you've got some insight into it.

------------------------------
 Ben Gilbert,  UBS - Analyst   [47]
------------------------------
 Just a final one for me, just understanding how working capital side of things, how far through that you are on the grocery side. I think you'd said done AUD80 million this year, how much more of an opportunity is that to bring that down going forward?

------------------------------
 Adrian Gratwicke,  Metcash Limited - CFO   [48]
------------------------------
 Yes, I think on the Strategy Day we called out another AUD40 million over two years. Think about that roughly being split equally between 2015 and 2016.

------------------------------
 Ben Gilbert,  UBS - Analyst   [49]
------------------------------
 Right, thank you.

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [50]
------------------------------
 Now I think that deals with most of the questions in the room so on that note we'll now pass across and take questions from the telephone lines please.

------------------------------
Operator   [51]
------------------------------
 We'll now begin the question and answer session. (Operator Instructions). Your first question comes from the line of Paul Checchin from Macquarie Securities. Your line is open, please go ahead.

------------------------------
 Paul Checchin,  Macquarie Securities - Analyst   [52]
------------------------------
 Thank you. Just the first question if you don't mind is just in relation to the new smaller store pilot. Does that mean you're CapEx requirements change relative to the expectations or the guidance you provided back at your Strategy Day in March?

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [53]
------------------------------
 No it doesn't because we hadn't anticipated a significant CapEx in small stores.

------------------------------
 Paul Checchin,  Macquarie Securities - Analyst   [54]
------------------------------
 Okay great. Then just secondly on the NightOwl comments you've made at today's briefing. I'm just curious, are NightOwl an existing customer of yours? So are you already capturing some of the AUD100 million of their revenue base?

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [55]
------------------------------
 Yes we already have a very tiny portion of their -- or we supply them with some product categories but it's very small in the scheme of the AUD100 million that we're now going to build.

------------------------------
 Paul Checchin,  Macquarie Securities - Analyst   [56]
------------------------------
 Okay great, thank you very much.

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [57]
------------------------------
 Thank you.

------------------------------
Operator   [58]
------------------------------
 Your next question comes from the line of Phillip Kimber from Goldman Sachs. Your line's open, please go ahead.

------------------------------
 Phillip Kimber,  Goldman Sachs - Analyst   [59]
------------------------------
 Hi guys, I just had a question on the food and grocery business like-for-like sales. I think in the first half you mentioned, including convenience, they were down 1.3% and now you've split it out into supermarkets and convenience separately. But it looks like it's gotten worse in the second half and I just wondered if you could comment on whether that's the case for the supermarket business, Metcash's like for like warehouse sales had deteriorated in the second half of the year?

------------------------------
 Fergus Collins,  Metcash Limited - CEO, Food & Grocery Supermarkets   [60]
------------------------------
 Yes I would say obviously their fuel discounts continued up until the end of January but we've definitely seen a slight recovery probably from February on. So the fuel discount didn't really push us around a lot so I wouldn't have said they deteriorated further from the first half.

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [61]
------------------------------
 Those reached a crescendo, for want of a better expression, in the run up to Christmas which was in the second half's numbers.

------------------------------
 Phillip Kimber,  Goldman Sachs - Analyst   [62]
------------------------------
 Okay and then the second question was, on slide 26 you mentioned that the retailer gross profit dollars in your 34 store pilot is positive after the Metcash price investment. Can you just confirm (1) Metcash are, I assume, funding all of that. If you net the two off, is it still positive?

------------------------------
 Fergus Collins,  Metcash Limited - CEO, Food & Grocery Supermarkets   [63]
------------------------------
 No we're not funding all that. The retailer -- it's a joint funding and the logic is that when we both invested it, that the increase in sales compensates for the drop in margin. That's obviously included in what we've got in our OpEx. So it's a very positive story.

------------------------------
 Phillip Kimber,  Goldman Sachs - Analyst   [64]
------------------------------
 Okay and one last one, I think it follows on from Ben's question. Just trying to understand, you talked about the OpEx investment in fiscal 2015 of around AUD45 million. Do you expect the base to continue to deteriorate until you get a meaningful number of stores on the (inaudible) because it sounds like it's going to happen more for the second half of fiscal 2015. So the underlying business goes backwards a bit and then you add the AUD45 million OpEx on top of that or do you think it's stabilised now?

------------------------------
 Fergus Collins,  Metcash Limited - CEO, Food & Grocery Supermarkets   [65]
------------------------------
 No, I would say it's stabilised and obviously, besides what we're doing in Diamond, we're obviously doing a lot of work behind the scenes and the whole merchandise area. So no, I don't expect it to continue to deteriorate, no.

------------------------------
 Phillip Kimber,  Goldman Sachs - Analyst   [66]
------------------------------
 Okay thank you.

------------------------------
Operator   [67]
------------------------------
 Your next question comes from the line of David Errington from Merrill Lynch. Your line is open, please go ahead.

------------------------------
 David Errington,  Merrill Lynch - Analyst   [68]
------------------------------
 Afternoon Ian. Ian, this might be for you and for Fergus. With your price match strategy, the Diamond strategy and also the private label Black & Gold resurgent strategy, it's targeted obviously on a select number of stores, particularly the Supa IGAs. Following a question previously, Supa IGAs, I think there's 500 Super IGAs, but you've also got 800 of the other IGA stores.

 Just looking and doing my own observation, the concern is that you're going to drive a wedge through the middle of your customer base. Say for a price match, where a 725 kilogram (sic - gram) box of Kellogg's Corn Flakes, under price match it's AUD4 whereas non price match it's well above AUD5. You're going to have 500 stores presumably, if that's a price match item and I'm certain it will be, on AUD4 for that yet the other big chunk of your portfolio of IGA stores are going to be well above AUD5. I just don't know how it's going to work.

 It looks to me that you're going to have the potential of an unbalanced portfolio of customers. You're comment that Fred's happy and Cornett's and Drake's are happy, well yeah they would be happy, but my observation talking to the smaller IGAs that aren't part of this, they're not very happy. A couple of them quoted the word, being shafted, with this.

 Can you comment on that because I'm just a bit concerned that you're going to be too focused on just servicing Supa IGAs and that you're going to walk away from your cornerstone customer which is the ordinary, everyday local hero?

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [69]
------------------------------
 I think -- thanks for the question first of all David -- there's a couple of ways to answer it. I think what Fergus talked about first of all is that the price match program itself has been in test with 34 stores, has had a level of confidentiality around it that is only just being explained to retailers now. So anyone who has the point of view that you've just expressed cannot possibly be well informed first of all because they won't actually know the detail of price match.

 So that's the first thing. Unless they were in the pilot they don't actually fully understand it yet and we've got our annual expo up in the Gold Coast next month which will be an opportunity to make sure that everybody leaves that, completely understanding what the pluses and minuses are.

 I think the second thing I would say is that we always envisage price match as being something that the retailer locally will choose to participate in because it's actually part of a compelling change in their business model. There will be retailers in the network who either will choose not to or will not want to participate. Well that's fine, they won't also get the rebate that those that are participating are receiving. So the rebate goes with the price investment. So as far as those smaller retailers are concerned, first of all we've got to fully explain to them how the economics work.

 Secondly we're also testing a smaller reference basket, and that is particularly with those people in mind. As you know we launched a 3500 SKU reference basket, so this smaller reference basket will be measured in hundreds rather than thousands. But the SKU you just mentioned, I would imagine, will fall into that particular basket.

 The final point would be that retailers will have to get good at fresh, full stop, in our view. So even the smaller retailers will have to be outstanding at fresh in the medium term. That will be part of what we'll be working with them on, is to get that fresh participation up because that's where there's more margin available for the retailer.

------------------------------
 David Errington,  Merrill Lynch - Analyst   [70]
------------------------------
 The second question Ian, I mean I think that -- I know that people are confidentiality and that but the pilot testing, I mean anyone could walk into a store and see what the price match was. I mean that's how I picked it up, the Kellogg's Corn Flakes example. So I don't know if -- things get out pretty quick. I'm just concerned that you--

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [71]
------------------------------
 But you haven't seen the sales increase that the retailers had.

------------------------------
 David Errington,  Merrill Lynch - Analyst   [72]
------------------------------
 No I haven't.

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [73]
------------------------------
 And you haven't talked to a retailer who's looked at his P&L and concluded he's actually making more money. So the sales are now growing and he's actually making more GP dollars. Otherwise you wouldn't be getting the reaction that Fergus is talking about. So look, it's early days David, there's a lot of miscommunication in any very wide, independent network at these stages. It's completely understandable but we're managing the communication the best we can. Fergus?

------------------------------
 Fergus Collins,  Metcash Limited - CEO, Food & Grocery Supermarkets   [74]
------------------------------
 I'd answer that David, it's not as if we didn't already consider that. You're not telling us something that we're obviously not fully aware of. I talked about what we're doing in the IGA Express space because we realise that, moving forward, the offer we actually do for those guys is not right. So we need to address that. But I think the key thing we need to maintain is that irrespective of what store you're in and what brand you operate in, you're still part of the IGA family.

 So liquor's a great example, we operate five different brands but under the liquor model. That's not saying we're going out and changing the IGA brand, we're far from doing that. But we do have that option to change brands, and particularly on the IGA Express [guys].

 Because I think everybody's been telling us for years that the price perception across the network is confusion for the consumer. So we get that. But again, rather than just running out and doing that, we're trialling the reference basket. And as Ian rightly said, the communication hasn't been available to us because we had that confidentiality around it. So yes, you'll walk into an IGA and you'll see a different price if you're on price match to one that's not on price match, but that's the pilot. That's what we're addressing now by rolling it out.

------------------------------
 David Errington,  Merrill Lynch - Analyst   [75]
------------------------------
 So following on with the private label strategy, you mentioned good, better, best and that Metcash is okay at good once you can get Black & Gold competitive again, and again there's a fair amount of price investment to do that, but I'm interested to get it to the better, best why you haven't discussed more the Signature brand?

 It seems to me that the Signature brand, when it came across from FAL, that would have been at the better, best. Yet the brand just doesn't seem to have any presence. Can you explain if you've got any intentions because Black & Gold, I couldn't see it getting above good, if that. Can you get Signature back up and if so is that part of the AUD40 to AUD45 million in investment that you've got planned for next year?

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [76]
------------------------------
 The first thing is, Black & Gold is very much part of the AUD40 to AUD45 million investment, as we said on March 12, and that's critical. Black & Gold is the discount tier and that's basically the only tier that we are truly effective in. Whether it's Signature or whether it's a different brand is yet to be determined.

 But it's a case of first things first here. The first thing we've got to do is sort out a discount tier which we're dominantly exposed to. At the same time develop the medium to longer term plan for the better and best tiers, of which Signature, I'm sure, will -- well it certainly features front of our thinking but it's not necessarily the full answer.

------------------------------
 David Errington,  Merrill Lynch - Analyst   [77]
------------------------------
 But the discount brand wouldn't be as effective in the Supa IGAs though Ian, would it? I mean those Supa IGAs are going down the Diamond format and they're going into the niche areas, the upper end. For those guys the Black & Gold wouldn't be as important as it would be for the smaller guys. Whereas something like a Signature brand I would have thought would be more relevant for those Supa IGAs.

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [78]
------------------------------
 We believe that both tiers are relevant for all the stores in the network. We absolutely have to do it.

------------------------------
 Fergus Collins,  Metcash Limited - CEO, Food & Grocery Supermarkets   [79]
------------------------------
 I think it's worthwhile remembering David, the majority of our volume is in the Black & Gold so we need to fix that. But we've been spending a lot of time and resources on fixing, as well, the strategy behind the Signature level as well. So you won't have seen anything on it but we're actually working behind the scenes.

 But the first thing I can fix is the price on Black & Gold, I can do that now and that's what we did as part of the pilot with very positive results. So we'll be rolling that opportunity across the rest of the network as part of the open enrolment.

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [80]
------------------------------
 I think you can look forward to more information on what we're going to do for better and best.

------------------------------
 David Errington,  Merrill Lynch - Analyst   [81]
------------------------------
 Okay, thanks Ian, thanks Fergus.

------------------------------
Operator   [82]
------------------------------
 Your next question comes from the line of Grant Saligari from Credit Suisse. Your line is open, please go ahead.

------------------------------
 Grant Saligari,  Credit Suisse - Analyst   [83]
------------------------------
 Thank you, good morning. I had two questions, if I could please. Again maybe the first one just continues on the price match questions. You've now obviously made quite a strong statement to your customers on price. So I'm just curious in terms of subsequent applications of price match, if tomorrow or in six months' time Woolworths or Coles reduce their prices further across those SKUs, are the same sort of funding arrangements in place for Metcash to assist the retailers in meeting the new benchmark price levels?

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [84]
------------------------------
 Yes and we monitor their prices every week already and have done for some time. So we'll respond if that eventuates here.

------------------------------
 Grant Saligari,  Credit Suisse - Analyst   [85]
------------------------------
 Okay and just the second question from me, just a clarification one if I could. In terms of the co-funding of the refurbishments with the retailers, how will that be reflected in the accounts? Will we see it come through the customer loans line or some other line in the accounts?

------------------------------
 Adrian Gratwicke,  Metcash Limited - CFO   [86]
------------------------------
 No it'll be through the customer loans line from a financing perspective. But I think, as Fergus suggested, there are a variety of different mechanisms that we can use to assist retailers with that refurbishment activity. There might be incentives linked to it to encourage a certain degree of take up by retailers, that'll obviously be a P&L cost.

 But on the financing side of it, it'll be through customer loans. It might be, in certain situations where the infrastructure going into a refurbished store is predominantly a fixed asset in nature, that there's just a flow through arrangement via a leasing company. That's one of the alternatives that we're exploring right now. So in other words it doesn't really touch us, it just flows through.

------------------------------
 Grant Saligari,  Credit Suisse - Analyst   [87]
------------------------------
 Alright thanks for the clarification.

------------------------------
Operator   [88]
------------------------------
 Your last question comes from the line of Daniel Broeren from CIMB. Your line is open, please go ahead.

------------------------------
 Daniel Broeren,  CIMB - Analyst   [89]
------------------------------
 Thanks, just one question for me on price match. You've talked about the messaging on price match being -- changing from thousands of products to hundreds of products and I just want to confirm, has the number of SKUs participating in price match changed or is it just the messaging that's changed?

------------------------------
 Fergus Collins,  Metcash Limited - CEO, Food & Grocery Supermarkets   [90]
------------------------------
 Obviously the messaging has changed and we have reduced the number of products in the reference baskets, for the simple reason is when we looked at the elasticity of the product it didn't move. But it's still a considerable number of products, I'm obviously not going to tell you exactly how many but it's still -- if we wanted to, we could still say in the thousands.

------------------------------
 Daniel Broeren,  CIMB - Analyst   [91]
------------------------------
 Okay, so the AUD40 million to AUD45 million investment hasn't changed since March but the number of SKUs has, so why has that number not changed?

------------------------------
 Ian Morrice,  Metcash Limited - CEO   [92]
------------------------------
 Well, I think it's a function of making sure that the level of investment we are making is invested behind products where we're getting an elasticity uplift. So where that's not been the case we've taken those out to ensure that we're not going to over-invest. If we left all of those in our investment would have been higher. But I would also say that we embarked on it with 3,500 SKUs knowing that that was too many and that we would refine it.

 So it's not a -- it's no accident that we're actually refining it and reducing the number, but rather than start with a basket of less than 1000 and work our way up, we determined that 3,500 was the right number to start with. And what we're saying is that having carried out that refinement of that reference basket we still get the same outcome from a sales point of view and a GP point of view for a retailer and we get the right outcome for Metcash that we had planned for.

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 Daniel Broeren,  CIMB - Analyst   [93]
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 Okay. Thank you.

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 Ian Morrice,  Metcash Limited - CEO   [94]
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 Okay. Okay, I think that--

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Operator   [95]
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 There are no further questions.

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 Ian Morrice,  Metcash Limited - CEO   [96]
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 --that concludes the Q&A. Thank you very much again ladies and gentlemen for coming this morning and we'll see you all again at the AGM.




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