Metcash : FY22 Half Year Results and Financial Report

"This is a significant achievement given the many challenges in the half including staff isolations, labour shortages, supply chain issues, continuously changing health regulations and other lockdown-related impacts.

"In Metcash, significant growth in underlying earnings was delivered through the strong trading performance and material contribution from strategic acquisitions, particularly Total Tools. Total Tools is proving to be a terrific acquisition and we remain excited about the further growth opportunities it provides.

only"Despite the challenges presented by extended COVID-related restrictions and lockdowns, we continued to make good progress with our MFuture initiatives, and plan to accelerate these in the second half as restrictions ease. This includes our investment in new eCommerce platforms, which are currently being rolled out across our Food and Liquor networks. In Hardware, our leading platforms in IHG and Total Tools continue to generate strong online sales growth.

"Our Horizon technology transformation program aimed at making it easier for suppliers and independent retailers to do business with us, is also progressing well with the first delivery, which includes replacing our core financial systems, successfully completed in November 2021 with no interruption to business operations or customers.

use"The strength of our independent retail network continues to improve. Retailers remain encouraged about the future and are investing in new stores and refreshes that further improve the quality of the network.

"Importantly, the sales momentum seen in recent periods has continued into the second half with sales growth recorded in all Pillars in the first five weeks of the half. We are also expecting our Food and Liquor pillars to benefit from a strong Christmas/New Year trading period and their extensive regional presence.

"The strong Group performance and financial position, together with an increase in our target dividend payout ratio led to a significant lift in the interim dividend, which is up 31% to 10.5 cents per share.

personal"We remain well placed to continue investing in our growth plans under MFuture focused on further improving the competitiveness of our independent retailers," Mr Adams said.

Results Overview

Group reported revenue, which excludes charge-through sales, increased 1.3% to $7.15bn (1H21: $7.06bn). Including

charge-through sales, Group revenue increased 1.5% to $8.22bn (1H21: $8.09bn), with each Pillar recording a high level of sales and substantial growth compared to 1H20.

Group underlying EBIT increased 13.9% to $231.2m reflecting the strong sales performance and improved leverage, as well as the success of recent strategic acquisitions. The pleasing performance in 1H22 follows significant growth in 1H21 with Group underlying EBIT up 30.4% in that half.

Although the Food pillar continued to perform well, EBIT was lower than in 1H21 reflecting a decline in the contribution from joint venture stores, the adverse impact of 7-Eleven4 and there being no tobacco excise increase in 1H22.

ForIn Liquor, earnings growth was underpinned by continued strong demand in the retail network, and an increase in on-premise sales in states less impacted by COVID-related restrictions.

In Hardware, exceptional earnings growth was again delivered (+65.8% growth in 1H21) driven by increased Trade sales, the strong performance of company-owned/joint venture stores in IHG and Total Tools and the significant contribution from acquisitions5.

Group underlying profit after tax increased 13.1% to $146.6m2, and statutory profit after tax increased 3.0% to $128.8m. Underlying earnings per share increased 15.0% to 14.6 cents reflecting the increase in profit after tax and the initial accretive benefit of the Company's $200m share buy back completed in August this year.

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Group operating cashflow was $212.1m (1H21: $314.9m) with the cash realisation ratio ~92%. The higher operating cashflow in 1H21 largely reflected the cash benefit of a reduction in working capital in that half. The Group ended the financial year with net debt of $148.6m (FY21: net cash $124.6m) reflecting the impact of the share buy back, and an increase in dividends paid.

The strong group performance and financial position, together with the increased dividend payout ratio announced earlier this year (~70% of underlying profit after tax) led to a 31% increase in the interim dividend for FY22 to 10.5

onlycents per share, fully franked.

Review of Trading Results

Food

Total Food sales (including charge-through) declined 4.9% or 0.2% excluding the impact of 7-Eleven4.Compared with 1H20, total Food sales (including charge-through) increased 4.1% or 16.8% excluding the impact of Drakes6 and 7- Eleven4. Total Food sales (including charge-through) ex tobacco increased 0.9%, and 16.1% compared with 1H20, both excluding the impact of 7-Eleven4.

useSupermarkets sales were broadly flat against the very strong prior corresponding period. Compared with 1H20, Supermarkets sales increased 14.4% (+18.0% ex Drakes6 impact). The IGA network continued to benefit from the shift in consumer behaviour, as well as the success of MFuture initiatives which have helped the retail network retain new and returning customers and significantly increase the average basket size.

Elevated Supermarket sales continued across all states. Sales growth was flat to positive in all states other than Victoria, which was cycling the impact of more sustained and prohibitive COVID-related restrictions than other states. Compared with 1H20, there was very strong growth in the states less impacted by COVID-related restrictions

personal(Western Australia, South Australia and Queensland) with sales growth averaging over 15% (ex Drakes6 impact). The IGA retail network continued to perform strongly with LfL3 sales increasing 0.8%, and 18.8% compared with 1H20.

The business invested to accelerate the rollout of its new eCommerce IGA Shop Online platform. The rollout commenced in New South Wales and Victoria, with expansion into Queensland and South Australia to follow. The new platform is currently in ~100 stores (FY21: 3 stores) and there is a pipeline of ~300 stores signed up, with further rapid expansion expected.

Food EBIT declined $7.8m or 7.6% to $95.2m, largely reflecting a decline in the contribution from joint venture stores, the adverse impact of 7-Eleven4,and there being no tobacco excise increase in 1H22 as previously announced. After adjusting for the above, and the earnings benefit from the resolution of onerous leases, EBIT improved ~$6m or 7%.

The EBIT margin7 for Food was in line with the prior corresponding period at 2.1%. Operating leverage improved compared to 2H21, with that half adversely impacted by an increased weighting of lower-margincharge-through and tobacco sales in the sales mix.

Liquor

Total Liquor sales (including charge-through) increased 6.6% to $2.17bn (1H21: $2.04bn), and were up 21.9% compared with 1H20 with strong demand from the IBA retail network and contract customers, as well as increased

Foron-premise sales.

The IBA retail network continued to be buoyed by the shift in consumer behaviour and improved competitiveness of its stores, as well as from home consumption substituting for on-premise consumption. Despite the improvement in on-premise sales, customers in this segment continued to be adversely impacted by extended COVID-related restrictions, particularly in New South Wales, Victoria and New Zealand.

Wholesale sales to the IBA banner group were flat, and increased 24.2% compared with 1H20, with the Cellarbrations and The Bottle-O banners the best performers. Retail LfL sales3 in the IBA banner group increased 6.9%, and were up 27.0% compared with 1H20.

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The business launched its new branded eCommerce platform in November 2021 for the Cellarbrations and The Bottle-O banners, with DoorDash and UberEats as delivery partners. Pilot stores are now operating with the new platform across the eastern seaboard, with the average basket size of $100+. The ShopMyLocal platform remains operational, but will be progressively converted to the new branded sites in 2H22.

Liquor EBIT increased $4.2m or 10.5% to $44.3m reflecting the contribution from the increase in sales volumes, which more than offset an increased weighting of lower-margin categories in the sales mix, as well as higher costs onlyassociated with the impact of COVID and a tight labour market. The EBIT margin for Liquor was in line with the prior

comparative period at 2.0%.

Hardware

Hardware sales (including charge-through) increased 17.9% to $1.48bn (1H21: $1.26bn) reflecting continued growth in Trade sales, strong DIY sales and the contribution from acquisitions, particularly Total Tools. Compared with 1H20, Total Hardware sales were up 42.1%.

Total IHG sales (including charge-through) increased 7.2% (+27.4% compared with 1H20) with strong growth in Trade usesales despite the adverse impact of COVID-related construction shutdowns and trading restrictions in New South Wales, Victoria and South Australia. Trade sales were partly buoyed by increased inflation in a number of Hardware

product categories.

DIY sales were slightly down on 1H21, but continued to be at a very high level, including in states less impacted by COVID-related trading restrictions, with the network continuing to retain new and returning customers supported by the success of MFuture initiatives. Online sales increased 114% (+250% compared with 1H20) which represents ~3% of sales, and reached ~5% of sales during the trading restrictions.

personalThe IHG banner group continued to perform strongly with retail LfL3 sales up 5.6%, with DIY sales flat and Trade sales up 8.8% (+17.7% with DIY +42.4% and Trade +7.7% compared with 1H20).

The lift in Trade sales led to a change in the sales mix with Trade representing 64% and DIY 36% (1H21: Trade 60%,

DIY: 40%).

Total Tools also continued to perform strongly with network LfL3 sales increasing 1.5% on a very strong prior corresponding period (1H21: +51.0%). Total Tools online sales increased 33% (1H21: +78%) which represents ~9% of network sales, and reached ~12% of sales during the trading restrictions. Total Tools network sales for the year ended October 2021 increased to $907m (YE 30 June 2020: $658m). Total Hardware pillar sales includes revenue of $153.5m8 from Total Tools.

Hardware EBIT increased a substantial $34.4m (+ 53.3%) to $98.9m, reflecting the increase in IHG sales, the strong performance of company-owned and joint venture stores, and the earnings from acquisitions5 which included the Total Tools Group delivering EBIT of $33.1m in 1H22 (1H21: $4.8m for 2 months).

The EBIT margin for Hardware increased 160bps to 6.7% and includes the positive impact of Total Tools and the retail margin from joint venture and company-owned stores.

Financial Position

ForGroup operating cashflow was $212.1m (1H21: $314.9m) with a cash realisation ratio of ~92%. The higher operating cashflow in 1H21 largely reflected the cash benefit of a reduction in working capital in that half.

The Group had net investing outflows of $104.9m, including capital expenditure of $60.7m and acquisitions of businesses of $72.8m. The business acquisitions were predominantly in the Hardware pillar and included the purchase of an additional 15% stake in Total Tools Holdings, increasing Metcash's holding to 85%.

The Group ended the financial year with net debt of $148.6m (FY21: net cash $124.6m) reflecting the impact of the Company's $200m share buy back that was completed in August this year, and an increase in dividends paid.

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