Metcash Limited
Annual Report 2021

Plain-text annual report

Annual Report 2021 Annual Report 2021 love your local About Us Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwarelove your local At Metcash, we believe that it is important to Australia that there is a sustainable, independent, family‑owned business sector. Independent retailers support their local communities. We are at the heart of the local community, sourcing a range of the best products from national, international and local suppliers. Contents About Us Purpose, Vision and Values Chairman’s Report CEO’s Report Strategic Direction Financial Highlights Food Liquor 02 03 04 06 10 12 14 18 22 Hardware 26 Sustainability Report 38 Our People and Our Board 40 Directors’ Report Financial Report 73 124 ASX Information 125 Corporate Information 1 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther InformationAbout Us About us Metcash is Australia’s leading wholesale distribution and marketing company with sales including charge‑through of over $16bn in FY21. We believe that it is important to Australia that there is a sustainable, independent, family‑owned business sector. Independent retailers are a vital part of their local communities. We help them to be the ‘Best Store in Town’ by providing merchandising, operational and marketing support across our Food, Liquor and Hardware pillars. >$16bn 1 Record group sales Our Pillars Food In Food, we are the largest supplier to independent supermarkets in Australia, with the widest distribution network and unmatched reach and delivery frequency. We support over 1,600 stores including the well known IGA and Foodland brands. Our retailers are conveniently located and are known for being at the heart of the local community. Our network has significant representation in local neighbourhoods, as well as regional and remote areas where we are often relied on as the only store in town. Liquor In Liquor, we are the second-largest player in the market, supplying ~90% of independent liquor stores in Australia. Our Independent Brands Australia (IBA) network is home to a number of successful national brands including IGA Liquor, Bottle-O and Cellarbrations. We also supply over 12,000 liquor customers through our Australian Liquor Marketers (ALM) division which includes supply agreements with contract customers in retail and ‘on-premise’ market segments. Hardware In Hardware, we are the second-largest player in the Australian hardware market. Metcash’s Independent Hardware Group (IHG) is a leader in Trade as well as having a solid track record of servicing the DIY market. IHG is home to the well-known Mitre 10 brand. The business has a strong track record of successful acquisitions with Home Timber & Hardware joining the group in 2016 and Total Tools coming under the banner in 2020. This has taken the combined Hardware network to over 700 stores located in metro and regional areas across the country. 1. FY21 Group reported sales revenue (which excludes charge-through sales in accordance with AASB15) was $14.3bn 2 Metcash Annual Report 2021 2 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout UsOur Purpose Our Vision Championing successful independents Our Values We believe independence is worth fighting for; in treating our people, retailers and suppliers the way we like to be treated; and in giving back to the communities where we live and work. Best store in town Passionate about independents A favourite place to work Business partner of choice Support thriving communities Creating a sustainable future 33 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther InformationAbout Us Chairman’s Report Chairman’s Report Welcome to Metcash’s Annual Report for 2021. It has been an exceptional year for the Company with record sales, a significant increase in earnings and record operating cashflow. The early success of our MFuture initiatives laid the foundation for a very successful year for both Metcash and our independent retailers. The improved competitiveness of our retailers was a key factor in their retention of new and returning customers gained through COVID which, together with the continuation of an increased preference for local neighbourhood shopping and the migration from cities to regional areas, drove strong sales growth. All Pillars performed strongly, with the Group continuing to successfully navigate significant challenges and uncertainty associated with COVID. I am particularly proud of the achievements of our Metcash teams and independent retailers in continuing to drive the implementation of our MFuture growth initiatives despite the challenges they faced in managing unprecedented levels of demand, border restrictions and ever-changing health regulations. Financial results Group revenue, including charge-through sales, increased ~10% to a record $16.4bn, with strong growth in all Pillars. Group EBIT increased ~20% to $401.4m and underlying profit after tax was ~27% higher at $252.7m. This represents a ~13% increase in underlying earnings per share to 24.7 cents. The strong earnings, together with effective working capital management, led to record operating cashflows of ~$475m ensuring the Company continued to be in a very strong financial position at the end of the financial year with net cash of ~$125m. Our Group CEO Jeff Adams discusses the financial and operating performance of the business in more detail in his report. Capital management I am pleased to report that the strong Group performance and financial position, together with confidence over future operating cashflows, will result in Metcash returning ~$354m 1 to shareholders since the payment of last year’s final dividend. The Board has a strong focus on shareholder returns and is appreciative of the support received from shareholders, particularly through COVID. The significant amount of capital being returned represents the Board’s decision to raise the target dividend payout ratio from 60% to 70% of net underlying profit after tax and the announcement of an off-market buy-back of up to $175m. Importantly all shareholders, whether or not they participate in the buy-back, will benefit through earnings per share and return on equity accretive outcomes. Shareholder dividends for the year increased 40% to 17.5 cents a share through the increase in payout ratio and the strong FY21 Group earnings. Strategy We are now two years into the MFuture program designed to provide a pathway to sustainable growth for Metcash, balanced with cost efficiencies. This year significant progress was made with key initiatives such as our store upgrade programs, rolling out new store formats, expanding our private and exclusive label ranges and accelerating our digital plans. We also sharpened our strategic direction to include an increased focus on customers and the community to support our aim of further improving the competitiveness of our retailers. The early success of MFuture has provided a strong foundation for the remaining three years of the program, which includes initiatives to retain new and returned customers gained through COVID, as well as attracting new shoppers to our retail networks. The program also includes pursuing attractive growth opportunities, including leveraging recent acquisitions such as Total Tools Holdings (TTH) in Hardware and the Kollaras private label portfolio in Liquor. We were pleased to announce the acquisition of a 70% stake in TTH in September last year. TTH has the largest professional tools network in Australia with a network of ~90 stores, and it is complementary to our Independent Hardware Group of stores. In December TTH acquired a majority interest in 12 Total Tools joint venture stores, and in June we increased our position in TTH to 85%. TTH has a history of strong earnings and is proving to be a great acquisition for Metcash. Board update We welcomed Christine Holman as a non-executive director in September 2020. Christine is an experienced ASX-listed company director and has more than 25 years of commercial experience across a broad range of areas including mergers and acquisitions, finance, sales, technology, digital transformation and marketing. Christine’s extensive and diverse experience is proving to be an asset to Metcash. In May 2021 we announced that Tonianne Dwyer would retire from the Board following completion of our FY21 financial statements. Tonianne has been a significant contributor to Metcash and has played a key role, particularly while Chair of the Audit, Risk and Compliance Committee, in the oversight of Metcash’s growth and governance. The Board and I sincerely thank Tonianne for her efforts and dedication to Metcash. Also in May 2021, we welcomed Margie Haseltine to the Board. Margie has over 30 years of experience spanning supply chains and logistics, customer interface in the FMCG sector, change management and governance, and has over 12 years’ experience in board directorship. Margie’s executive career includes 20 years at Mars Inc. including five years as CEO of Mars Food in Australia. Remuneration and culture Last year the Board took certain measures in response to the uncertainty associated with COVID including deferring scheduled remuneration increases for executive Key Management Personnel (KMP); determining STI and LTI vesting outcomes based broadly on pre-pandemic outcomes to avoid any undue benefit; increasing the deferred component of the FY20 STI award; and deferring scheduled non-executive director fee increases. Once the Group’s performance stabilised in FY21, the previously approved increases to KMP remuneration were applied and KMP STI deferral percentages returned to standard policy. Remuneration for the Group CEO has not changed since his appointment in 2017, and while no increase was applied to his fixed pay, there was an increase to his STI and LTI opportunity to better align his pay mix to market practice and increase the ‘at risk’ component of his total remuneration. 4 Metcash Annual Report 2021 4 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout UsEnvironmental, Social and Governance (ESG) The year included the Company further improving its ESG credentials, expanding its ESG disclosures and embedding sustainability into the Metcash culture. Our achievements this year, as well as the expanded disclosures, are detailed in our first Sustainability Report which is included in this Annual Report commencing on page 26. We expect to continue building on this progress over the next few years, including improving our safety performance as commented on in the CEO’s and Sustainability Reports. Going forward While it has been an exceptional year for Metcash, shoppers are continuing to enjoy visiting their local independent stores in our Food, Liquor and Hardware network with sales in the early part of FY22 continuing to be elevated against pre-COVID levels. Making our retailers more competitive has proven to be the right strategy for Metcash. Importantly, we continue to be well positioned with a strong financial position that includes flexibility to invest in our growth plans. Our sharpened MFuture plans for the next three years aim to further improve our retailers’ competitiveness and include a balance of good growth and cost out initiatives. While our Hardware pillar is already positioned with leading digital technology, we are stepping up our investment in digital to accelerate the delivery of solutions for our Food and Liquor retailers who now have an increased interest in these solutions. We are also investing in a new project named ‘Horizon’ which aims to drive efficiencies through simplification, as well as growth through making it easier to do business with Metcash. This will be a staged program with the first phase focused on simplification and building a better future operating platform. Thanks To all our people, the Metcash leadership team, our independent retailers, suppliers and our shareholders, I would like to express my thanks, and that of the entire Board, for your ongoing support. Finally, I would like to thank my fellow Directors for their commitment and contribution to Metcash over the past year, and for their ongoing support in what has been another challenging but very successful year. Rob Murray Chairman The remuneration package for the CEO of the Food Pillar was increased, positioning him slightly below his peer group benchmark. Board fees increased 5% in FY21 and remain below medians at between 81% and 99% of peer group benchmarks. The Board will seek shareholder approval at this year’s Annual General Meeting to increase the Board fees pool from $1.6m to $2.0m, which will provide capacity to appoint an additional director in the future. This will be the first time the Board has sought an increase in the fees pool since 2012. STI outcomes for KMP ranged from 67% to 90% of maximum reflecting the delivery of exceptional results in FY21. Our FY19 LTI vested at 90% reflecting the underlying earnings per share CAGR hurdle being met and the TSR hurdle being exceeded by 6%. For the third consecutive year Metcash was awarded an Employer of Choice citation by the Workplace Gender Equality Agency. This is recognition of our deep commitment to gender pay parity and gender equality in the workforce. Metcash was also awarded Gold level recognition under the Mental Health First Aider Skilled Workplace Program and was identified as a Flexready Certified organisation, which recognises leading employers who support flexible work practices. Pleasingly, our overall employee engagement result continued to improve in FY21, lifting a further ~20% to 57% through the significant efforts of our people despite facing many challenges such as the ever- changing health regulations. Further details on our remuneration framework and outcomes for FY21 can be found in the Remuneration Report commencing on page 56. $354m 1 Returned to shareholders since FY20 final dividend 1. Reflects an off-market buy-back of ~$175m and excludes any FY22 potential dividends. 5 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther InformationAbout Us Chairman’s Report CEO’s Report CEO’s Report As the Chairman noted, it has been an exceptional year for Metcash with sales exceeding $16bn for the first time in our history, and this has driven significant earnings growth and record operating cashflow. Our Pillars have done an outstanding job in continuing to manage through the many challenges arising from COVID, particularly those related to meeting elevated demand, supply chain challenges and the need to adjust our operations in response to the ever-changing health regulations including lockdowns, work from home requirements and border restrictions. I am extremely proud of our Pillars and independent retailers who, despite these challenges, continued to drive the implementation of our MFuture initiatives aimed at further improving their competitiveness. We can see the benefits of their efforts in the continuation of strong sales well over a year after the commencement of COVID in March last year. Shoppers are clearly enjoying shopping locally and enjoying the improved competitiveness of our retailers. Group results Group revenue, including charge-through sales, increased 10.1% to $16.4bn, with significant growth in sales volumes across all Pillars. Group underlying EBIT increased 19.9% to $401.4m, reflecting the strong volume growth, contribution from our successful acquisitions and improved leverage in all Pillars. Group underlying profit after tax increased 27.1% to $252.7m and statutory profit after tax was $239.0m (FY20: loss of $56.8m). Underlying earnings per share increased 13.3% to 24.7 cents reflecting an increase in profit after tax and the impact of the Company’s capital raising in FY20. Group operating cashflow was a record $475.5m (FY20: $117.5m) which reflects the higher earnings and a reduction in working capital. The Group continues to be in a strong financial position ending the financial year with net cash of $124.6m (FY20: $86.7m). The strong Group performance and financial position, together with confidence over future operating cashflows led to the announcement of capital management initiatives. These included an increase in the target dividend payout ratio from 60% to 70% of net underlying profit after tax, and an off-market buy-back of up to $175m. The increase in the dividend payout ratio was effective in FY21, and together with the strong performance in the year, led to a 40% increase in FY21 dividends to 17.5 cents per share. As noted by the Chairman, the combination of the FY21 dividend and the share buy-back will result in ~$354m being returned to shareholders since payment of the final dividend for FY20. ESG This year has seen a significant step up in our efforts to further improve our credentials and performance in this important area. This included amending Metcash’s Vision to include “creating a sustainable future” and the establishment of the Metcash ESG Council. The Council is chaired by myself and includes members from our Group Leadership Team and will focus on embedding sustainability into the organisation’s culture as well as driving our ESG agenda. Other achievements in the year include reducing our carbon footprint, setting a science-based emissions reductions target for 2030 which equates to a 42% reduction in emissions from 2020, further progress towards alignments with the Task Force on Climate-related Financial Disclosures, reducing waste to landfill as well as plastic wrapping. A full list of achievements together with other relevant disclosures are included in the Sustainability Report commencing on page 26. Safety Metcash remains committed to the continuous reinforcement of zero harm, which includes preventing work-related injury and illness for employees, visitors, contractors and members of the public as well as zero harm in relation to pollution in our community. There were many safety achievements in the year including improvements in our leading indicator metrics. These all trended positively in FY21, with targets being exceeded by 29% for safety engagement conversations, 95% for safety communications, 57% for safety inspections and 56% for hazards reported. Our key safety measure of Total Recordable Injury Frequency Rates (TRIFR) was slightly above the prior year at 27.1 (FY20: 26.8) which is a reflection of the increase in work complexity due to the challenges of COVID and the cycling of higher labour hours. The significant efforts of our Safety team are however reflected in a ~30% reduction in the TRIFR measure over the past four years. We have plans in place designed to improve our TRIFR performance in FY22. 6 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout UsOperational performance Food Our Food pillar performed very well delivering much higher underlying earnings while continuing to support our retail customers through the challenging environment. Total Food sales, including charge-through sales, increased 3.1% to $9.4bn, or 11.0% excluding the impact of Drakes 1 and 7-Eleven 2. In Supermarkets, total sales, including charge-through sales, increased 10.0% to $8.3bn, and were up 11.6% excluding the impact of Drakes. Strong sales growth was delivered in all States, particularly Victoria where demand was elevated by extended COVID-related lockdowns. The overall IGA network had a very strong year, resulting in an improvement in the financial health of our independent retailers, with like-for-like sales up 10.5% even with the impact of the panic buying period in March and April last year. When comparing against FY19, sales were up nearly 19% for the year. Our IGA retailers continued to benefit from the shift in consumer behaviour including an increased preference for local neighbourhood shopping, migration from cities to regional areas, more flexible working and cooking at home and the success of our MFuture initiatives to retain new and returning customers gained through COVID. Total Food EBIT increased $9.7m or 5.3% to $192.4m. On a normalised basis after adjusting for factors such as Drakes, 7-Eleven and increased earnings from our joint venture partners, the year-on-year EBIT increase would be ~$20m or ~11%. Overall, the Food team did an excellent job managing their operating costs, even with the pressures from inflation and COVID-related costs. The Food Pillar continued to make good progress with its MFuture initiatives. Store upgrades under the Diamond Store Accelerator (DSA) program have reached 622, with ~45% of the IGA network now refreshed. The average sales uplift for DSA stores is greater than 10%, and we plan to upgrade a further 100 to 130 stores per year over the next five years. 1. Metcash ceased to supply Drakes in South Australia from 30 September 2019. To enable comparison, sales in the comparative period have been adjusted accordingly, to exclude the impact of sales to Drakes. 2. The previous supply agreement with 7-Eleven concluded on 17 August 2020. To enable comparison, sales in the comparative period have been adjusted accordingly, to exclude the impact of sales to 7-Eleven. Liquor Liquor sales, including charge-through sales, increased a significant 19.2% in the year to $4.4bn despite the adverse impact of COVID-related restrictions on ‘on-premise’ sales, particularly in the first half of FY21. Wholesale sales to the IBA banner group increased over 22%, with strong growth across all our banners. Like Food, the strong demand was driven by the shift in consumer behaviour together with other market factors like reduced international travel and duty-free sales. Retail like-for-like sales in the IBA banner group increased 19.7% (FY20: +3.2%) with strong growth continuing in the second half of FY21 despite a recovery in ‘on-premise’ sales. Liquor EBIT also increased significantly, up $15.9m or almost 22% to $88.7m. Progress with our Best Store in Town initiatives resulted in a further 430 stores refreshed and an additional 133 cool rooms being upgraded. We also expanded our Owned and Exclusive product range with the acquisition of the Kollaras private label portfolio which enables us to further drive consumer value and quality while building margin for our retailers. The initial focus with our retailers has been expansion of the Owned and Exclusive wine category. The business continued to trial its Shop My Local online offer that was launched successfully ahead of time late last financial year in response to the impacts of COVID. A further online platform was trialled in FY21 for the Cellarbrations brand in Victoria, and additional brand-based platforms are expected to be added in FY22. Under our brand clarity initiative, a new suite of brands has been developed and endorsed by our IGA retailers with ‘guard rails’ around store standards, product ranges and pricing to drive consistency of offer across each of the brands. Alternate non-IGA brands are available for retailers who elect to not meet the IGA brand standards. Further detail on the new brands can be found in the Food Pillar section of this report commencing on page 14. Under our new store format trials, the first Supa Valu large format store was opened in Doonside, NSW in May last year, and a second store was opened in Ballina, NSW in March this year. The stores have been very well received and we anticipate working with our retailers to open more of these large format stores over the coming years. Our Fresh Pantry small format store trial has been completed and we are now in the process of embedding the learnings from the trial in our future network plans. We were excited to open our new distribution centre (DC) in South Australia last December. The new DC helps to improve the competitiveness of our retailers in South Australia through providing an expanded range of products and from the delivery of increased efficiencies. Our project team did an amazing job in getting the new DC open and operating in line with our expectations despite the many challenges associated with COVID, including lockdowns in South Australia just prior to its opening. Following the successful launch last year of our IGA Priority Shop and IGA Shop Online, further development was undertaken to deliver a next generation eCommerce platform for the IGA network. Trials of this next generation platform commenced towards the end of FY21 and we are looking to roll this platform out to ~800 of our IGA stores by FY25. Inside new distribution centre in South Australia 7 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther InformationChairman’s Report CEO’s Report CEO’s Report continued “Our Pillars have continued to benefit from the shift in consumer behaviour including the increased preference for local neighbourhood shopping, as well as the success of our MFuture program in improving the competitiveness of our independent retailers.” Hardware Total Hardware sales, including charge-through sales, increased 24.7% to $2.6bn with significant growth in DIY and a return to growth in Trade sales. Total sales in the Independent Hardware Group, which excludes Total Tools, increased 17.9% (FY20: -1.3%). Retail like-for-like sales in the IHG banner group increased 11.4% (FY20: -0.7%), with DIY sales up 25.1% and Trade sales up ~5%. The significant growth in DIY was underpinned by a shift in consumer behaviour to more home improvement projects, gardening and maintenance activity and the success of MFuture initiatives to further improve the competitiveness of the IHG retail network. Trade sales strengthened in the second half of the year supported by Government stimulus aimed at driving increased renovation activity. The growth in higher margin DIY sales led to the sales mix changing to ~40% DIY and ~60% Trade (FY20: ~37% DIY and ~63% Trade). Online sales were very strong, increasing 122% with Hardware’s advanced digital capability helping optimise strong online demand. A further ~160,000 loyalty members were added in the year, with total loyalty members now more than 1.2m. The Hardware pillar also continued to make good progress with its MFuture initiatives. There are now 130 IHG stores that have completed the Sapphire store upgrade program. These stores have historically reported sales growth after being upgraded of more than 15% p.a., and this year they continued to outperform non-Sapphire upgraded stores with average retail sales growth greater than 25%. Due to the success of the program we increased the target number of stores to be upgraded from 200 to 300 by 2025. Hardware’s ‘Whole of House’ initiative is expected to help further build on its leading position in the Trade segment. The business has now established national coverage from nine Frame and Truss sites and has alliances in place which ensures it is able to supply the key stages of a house build including Foundations, Frame and Truss, Lock Up, Fix and Fit Out. IHG’s share of the supply component of a house build increased from ~30% to ~35% in FY21 and there is potential to grow this further. 8 Metcash Annual Report 2021 The business continued to accelerate its investment in digital including its market leading Trade Technology, DIY eCommerce, Loyalty and Data Insights and Analytics. Customer uptake increased significantly in the year, partly reflecting the impact of COVID and the related lockdowns. We are excited over the significant growth opportunities presented through the acquisition of Total Tools Holdings. The business has a history of strong growth, which has continued since our acquisition of a majority stake in September 2020. The acquisition of a further 15% in June 2021, together with the provision of loan facilities, is expected to help progress its growth plans including the addition of new sites and joint venture stores. Cost management Metcash has a history of delivering on its cost-out targets including achieving $125m of savings through the Working Smarter program which concluded in FY19, and ~$50m of savings over the first two years of the MFuture program. This year we launched project Horizon, aimed at driving further efficiencies through simplification, as well as growth through making it easier to do business with Metcash. In addition to these aims, the first stage of this program will also include a focus on Group technical infrastructure consolidation and replacement, process efficiency foundations and better alignment of our infrastructure across the business. The first stage of the project is expected to be completed in FY23. Digital While IHG and our newly acquired Total Tools business already have leading digital technology, digital has generally been a low priority for our Food and Liquor independent retailers until the onset of COVID. The acceleration of online sales and our eCommerce platforms in Food and Liquor last year has significantly increased interest from our retailers in digital solutions. We estimate the digital opportunity for our retailers and Metcash is a very material ~$1bn, and with our retailers well positioned with the locations, customer base, strong well-known brands, infrastructure and scale, we believe now is the right time to invest and work with our retailers to deliver these solutions. Proven off-the-shelf technologies are now available to lower development costs and increase the speed at which we can deliver these solutions. Importantly, the ‘last mile’ delivery cost hurdle for our retailers has now been removed with many new providers available, making online offers more competitive and economic. Metcash is now investing in Group-wide digital capability which is aligned to the work of our Pillars to expedite and enhance the delivery of digital solutions for our retailers. Going forward When releasing our FY21 results in June, we announced that there had been a strong start to FY22 with sales in our Food, Liquor and Hardware pillars in the first eight weeks continuing to be well above the same period in FY20, which is before the increase in demand related to COVID. Our Pillars have continued to benefit from the shift in consumer behaviour including the increased preference for local neighbourhood shopping, as well as the success of our MFuture program in improving the competitiveness of our independent retailers. Our MFuture strategy focused on championing the success of our independent retailers through further improving their competitiveness continues to be the right one. You can find more detail on our MFuture plans going forward in the Pillar sections of this report. Thanks I would like to extend my sincere thanks to our independent retailers and suppliers, and the entire Metcash team and Board, for their support and encouragement throughout the year. I am very proud of the way that we have all continued to work together through another challenging but successful year to achieve our purpose of championing our independent retailers. Jeff Adams Group CEO Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us9 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther InformationStrategic Direction Re-focused strategic direction Customer and Community Easy to do business with Shopper‑led offer Business partner of choice for suppliers Lean, low cost operating model and supply chain Increased retailer competitiveness driving shareholder value 10 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportFinancial HighlightsFoodLiquorHardwareAbout UsMFuture A five year program launched in 2019 aimed at providing a pathway to sustainable growth, balanced with cost efficiencies. Significant progress to date has provided a strong foundation for the remaining three years of the program. Focus for next three years Continue supporting our retailers to further improve their competitiveness and retain new and returned customers gained through COVID, as well as attract new shoppers. Growth Store upgrade programs Store formats Ranging and pricing Private label Accelerating eCommerce Pursuing attractive growth opportunities through leveraging recent acquisitions System enhancement – Project Horizon Costs 1111 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther InformationFinancial Highlights Financial Highlights Five year review Financial Performance Reported sales revenue ($m) Underlying EBIT ($m) Finance costs, net ($m) Underlying profit after tax ($m) Reported profit/(loss) after tax ($m) Operating cashflows ($m) Cash realisation ratio (%) Financial Position Shareholders’ equity ($m) Net cash/(debt) ($m) Gearing ratio (%) Return on funds employed (%) Share Statistics Fully paid ordinary shares Weighted average ordinary shares Underlying earnings per share (cents) Reported earnings/(loss) per share (cents) Dividends declared per share (cents) Dividend payout ratio (%) Other Statistics Number of employees (full-time equivalents) 2021 2020 2019 1 2018 1 2017 1,2 14,315.3 13,025.4 12,660.3 12,442.2 12,293.0 401.4 (42.6) 252.7 239.0 475.5 114% 1,291.1 124.6 (10.7%) 28.6% 1,022.4 1,021.9 24.7 23.4 17.5 71% 334.9 (52.0) 198.8 (56.8) 117.5 33% 330.0 (28.9) 210.3 192.8 244.9 92% 334.6 (26.4) 216.9 (148.2) 276.3 101% 304.8 (33.6) 194.8 171.9 304.6 118% 1,371.6 1,250.1 1,334.2 1,583.2 86.7 (6.7%) 24.9% 1,016.4 910.1 21.8 (6.2) 12.5 57% (42.9) 3.3% 27.7% 909.3 928.6 22.6 20.8 13.5 60% 42.8 (3.2%) 24.4% 975.6 975.6 22.2 (15.2) 13.0 59% (80.8) 4.7% 19.0% 975.6 958.8 20.3 17.9 4.5 22% 7,010 6,400 6,378 6,378 6,708 1. FY17 to FY19 financials are reported on a pre-AASB16 basis. 2. FY17 EBIT, profit after tax, shareholder’s equity and EPS have not been adjusted to reflect AASB16. 3 . 5 1 3 , 4 1 . 4 5 2 0 , 3 1 . 4 1 0 4 . 6 4 3 3 . 0 0 3 3 . 9 4 3 3 . 8 4 0 3 . 7 2 5 2 . 9 6 1 2 . 3 0 1 2 . 8 8 9 1 . 8 4 9 1 . 2 2 2 . 6 2 2 . 8 1 2 . 3 0 2 . 7 4 2 . 6 4 0 3 . 3 6 7 2 . 9 4 4 2 5 . 5 7 4 . 5 7 1 1 . 3 0 6 6 2 1 , . 2 2 4 4 2 1 , . 0 3 9 2 2 1 , 17 18 19 20 21 17 18 19 20 21 17 18 19 20 21 17 18 19 20 21 17 18 19 20 21 Sales ($m) EBIT (Underlying) ($m) PAT (Underlying) ($m) EPS (Underlying) (cents) Operating cashflows ($m) 12 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout UsA strong financial position $252.7m Underlying profit after tax $401.4m Group EBIT 17.5c Total FY21 Dividends per share $124.6m Net cash position at year end 13 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther InformationFood 14 Metcash Annual Report 2021 14 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout UsFood We are the largest supplier to independent supermarkets in Australia, with the widest distribution network and unmatched reach and delivery frequency. We support over 1,600 stores including the well known IGA and Foodland brands, and are a significant supplier to large contract customers. Our retailers are conveniently situated in local neighbourhoods and are known for being at the heart of the local community. A large proportion of our stores are located in regional and remote areas where we are often relied on as the only store in town. The IGA network provides shoppers with a competitive offer across a broad range of products, that in many cases is perfectly tailored for local customers. Our stores are community focused with support provided to many local community groups through our Community Chest program together with other support from our retailers, and local suppliers and businesses through stocking locally sourced products. Our Food pillar has distribution centres in each major capital city and in several regional locations. Our leading logistics and distribution capabilities ensure we have an efficient, flexible and responsive supply chain, and this underpins our position as a partner of choice for getting product to market. The strength and flexibility of our operations have been particularly evident through COVID with our business managing exceptionally well through unprecedented demand and supply chain challenges associated with lockdowns, border restrictions and other health regulations. In Convenience, we support more than 90,000 customers nationwide. The businesses we support include restaurants, coffee shops, fresh food outlets as well as forecourt retail and local convenience stores. IGA national distribution network Scott Marshall CEO, Metcash Food WA NT SA QLD NSW MAJOR DISTRIBUTION CENTRE REGIONAL DISTRIBUTION CENTRES VIC TAS 15 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther InformationFood Food continued A stronger foundation A business reset in 2019 together with the early success of MFuture initiatives delivered positive momentum for the Food pillar leading into the onset of COVID in 2020 and the subsequent changes in consumer behaviour. Acceleration of our Diamond Store Accelerator (DSA) program and continued improvement in product ranges, prices and supply chain efficiency helped drive a return to underlying sales growth in supermarkets, lift retailer satisfaction scores to record highs and improve retailer relationships and trust. The onset of COVID and related restrictions led to the acceleration of many shoppers rediscovering their local IGA stores and enjoying the improved quality and competitiveness of our store network. Our retailers have benefited from a shift in consumer behaviour including an increased preference for local neighbourhood shopping, more flexible working and eating at home, migration from cities to regional areas and an increased preference for branded products. The improved competitiveness has helped retain new and returning customers, and our network is ideally positioned to continue benefiting from the shift in consumer behaviour. Going forward The remaining three years of our MFuture program focuses on further improving the competitiveness of our retailers and sales growth. Key components are our ‘Network of the Future’ program which includes refreshing the network with national brand standards and a more consistent offer by brand. It also includes a continuation of our DSA store upgrade program, new store formats, an expansion of our private and exclusive label range, and driving more value for shoppers through ensuring we continue to have a competitive core range and price position. The second component focuses on eCommerce and Loyalty initiatives including the rollout of a next generation eCommerce platform and further enhancement of our loyalty program, IGA Rewards. The remaining component is continuous improvement of our supply chain processes including investment in our systems, as well as leveraging our new Distribution Centre in South Australia which provides a greater range of products and increased efficiencies for our Foodland and IGA retailers in South Australia. Network of the Future – new IGA brands We are excited to be rolling out a new suite of brands and channel blueprint specifically tailored to target shopper preferences and improve their shopping experience. There is a brand for each of our retailers’ needs with standards in place to ensure shoppers experience a consistent offer for each brand across each store in all States. The new suite of brands has been agreed with our IGA retailers and includes utilising the existing IGA brand and the development of new non-IGA branding for those retailers that choose not to meet IGA brand standards. Supa Valu is a new brand developed for a larger footprint store with lower prices suited to specific locations and demographics. Two new stores under the Supa Valu banner opened this year, both being well received by the local communities where they are operating. We plan to have more of these stores in the coming years. Supa Valu Ballina In March 2021, the popular Ritchies Supa IGA in Ballina underwent a multi-million-dollar transformation and relaunched as Supa Valu Ballina. The Supa Valu concept is part of IGA’s new format trials and follows the launch of the Fresh Pantry brand in 2019. The opening of Supa Valu Ballina follows the successful launch of the first Supa Valu store in Doonside NSW in 2020. The Supa Valu brand offers exceptional savings with low pricing across the entire store and bigger deals on pallet buys in the centre of the store. The store also offers convenient features such as in-store butchers as well as freshly made bakery products and sushi daily. 16 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout UsFor the core of our network, we retained the valued IGA brand and added IGA Fine Foods branding to suit ‘inspirational’ stores in the network that are particularly appealing to ‘foodies’. For our small format stores, we have the IGA Local Grocer and Fresh Pantry brands which will replace the IGA Xpress brand that is being phased out. Village Grocer will be the non-IGA alternate brand. We expect the branding transition to be completed by 2024 supported by store upgrades facilitated through our DSA program. Network of the Future – DSA store upgrade program We have continued to work closely with our retailers to simplify our DSA program, and they have responded with accelerated demand for store upgrades and increased investment in their stores. The program provides a more modernised store and a better experience for shoppers, driving excellent returns for retailers and increased sales for Metcash. There have been 622 store upgrades under the DSA program, generating on average retailer sales improvement of over 10%, excluding increased sales related to COVID. Around 45% of the network has been upgraded with some stores now going through their second refresh. We are targeting a further 100 to 130 store upgrades per year over the next five years, which will result in ~90% of the network being upgraded by FY26. Next generation eCommerce platform IGA Priority Shop was established in April 2020 in response to the need for those in the community who were vulnerable during the COVID lockdowns to get access to essential goods. This was followed by accelerating the rollout of IGA Shop Online, an online IGA shopping platform that can be accessed and utilised by all our retailers. IGA Rewards loyalty program Our IGA Rewards loyalty program enables retailers to better compete and communicate with their customers on a personalised basis using actual in-store shopping behaviour and preferences. The program has been successfully trialled in Western Australia and Queensland and is live in ~200 stores, with further rollout across the network underway. A number of our retailers operate their own loyalty programs and IGA Rewards is complementary to these offers with our trials showing it drives higher store visit frequency and increased spending by members compared with non-members. The success of both IGA Priority Shop and IGA Shop Online together with increased interest from our retailers for digital solutions led to further development to deliver a next generation eCommerce platform for the IGA network. New features provide a more personalised experience for shoppers and include a sophisticated in-store order fulfilment solution with a store-specific picking app. Importantly, the ‘last mile’ delivery cost hurdle for our retailers has now been removed with many new providers available, making online offers more competitive and economic. Trials of this next generation platform commenced towards the end of FY21 and we are looking to roll this platform out to ~800 of our IGA stores by FY25. South Everleigh IGA In early 2021 the Romeo family opened a one-of-a-kind IGA store located in the heart of Sydney’s new South Eveleigh precinct. The state-of-the-art concept introduces an extensive takeaway dining menu with a popular in-store pizza oven and a served carvery. The ~1,200sqm store offers an in-house fishmonger, butcher servery, in-store sushi chefs, a walk-in cheese room with a selection of the world’s finest gourmet cheeses and a huge range of fresh local fruit and vegetables. The store also offers niche products from many local and international producers including fresh Australian flowers and gourmet produce. 17 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther InformationLiquor Liquor In Liquor, we are the second‑largest player in the market, supplying ~90% of independent liquor stores in Australia. Our Independent Brands Australia (IBA) network is home to a number of successful national brands including IGA Liquor, Bottle‑O and Cellarbrations. The IBA retail network consists of ~1,950 tier one bannered stores across Australia and New Zealand. IBA supports these retailers through its national buying capacity, marketing support, promotional programs, a portfolio of Owned and Exclusive brands and network investment to provide the ‘Best Store in Town’. The differentiated position of our IBA retailers includes being positioned conveniently in local neighbourhoods, with local product ranges tailored to each location and community, and bespoke promotional programs. We also supply over 12,000 liquor customers through our Australian Liquor Marketers (ALM) division which includes supply agreements with large and small contract banner groups, un-bannered liquor stores, ‘on-premise’ and eCommerce retailers. Chris Baddock CEO, Metcash Liquor IBA network of tier one stores WA 137 NT 24 SA 96 A national presence in Australia and NZ through our network distribution centres and independent retailers DISTRIBUTION CENTRES Stores numbers as at Oct 20 18 Metcash Annual Report 2021 QLD 264 NSW 356 VIC 631 TAS 115 NZ 325 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us19 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther InformationLiquor Digital transformation Like our retailers in the Food pillar, the level of interest and support from our Liquor retailers in relation to eCommerce solutions rose significantly post the onset of COVID. The business accelerated the trial of its Shop My Local marketplace with Click & Collect and Click & Deliver options available. This was followed by the trial of a Cellarbrations branded online offer in Victoria with learnings from both trials resulting in the business moving forward on a branded eCommerce solution which is currently being worked through with retailers. The Liquor eCommerce channel is a largely untapped one for both our retailers and Metcash. The size of the opportunity is large at ~$1.3bn, and we look forward to rolling out our branded eCommerce solution across the network. We are also working with our retailers to design an appropriate banner-led Loyalty solution, with the expectation that we’ll be ready to launch the program by the end of FY22. A key enabler of our new eCommerce and Loyalty programs is our point of sale integration project. We expect the majority of our IBA network to be integrated with the system by late 2021, leading to an enhanced experience for shoppers and a significant increase in the average eCommerce basket size. Cellarbrations Glenorie Cellarbrations in Glenorie, NSW opened less than two years ago and is already extremely popular with the local community. It is owner Alan Reuben’s fourth consecutive store with the brand and in each of his locations, he prides himself on getting to know the local community and ordering in special lines tailored to customer taste. Located in a semi-rural area, the large parking area in the back of the store makes it accessible for his customers who often visit with their horse floats, trucks and trailers in tow. Inside, the store has a wide range on offer, from craft beers to an extensive spirit selection as well as well-stocked wine shelves. Alan even offers gas swaps and firewood in response to local demand. Liquor continued Shift in shopper behaviour The Liquor pillar has experienced strong sales growth in the IBA network and with ALM contract customers, through the shift in shopper behaviour related to COVID and the increased competitiveness of stores. Underpinning this shift is an increased preference for local shopping, home consumption substituting ‘on-premise’ consumption, migration from cities to regional areas (where our retailers are well represented), and less overseas travel and duty-free shopping. Our ‘on-premise’ customers have been adversely impacted through rolling lockdowns and restrictions in Australia and New Zealand related to COVID. Metcash provided support to these customers by enabling stock to be returned and through facilitating payment plans and re-opening deals. Pleasingly, these initiatives have helped strengthen relationships and loyalty with our customers and attracted new ‘on-premise’ customers to the business. Sales to our retail bottle shop customers continued to be strong in the second half of FY21 despite a recovery in ‘on-premise’ sales. MFuture program Our focus continues to be on further improving the competitiveness and success of our independent retailers to help them retain shoppers gained through COVID and to add new customers. Our initiatives to drive this under the MFuture program centre on digital transformation including eCommerce and Loyalty, Owned and Exclusive brands – including leveraging our recent acquisition of the Kollaras portfolio of brands, supply chain flexibility and efficiency, and driving brand awareness and appeal. 20 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout UsOwned and Exclusive labels Our IBA network has historically under- indexed in the Owned and Exclusive labels category, which presents an opportunity for both sales and margin growth for our retailers. We are targeting wholesale sales of Owned and Exclusive brands growing to ~5% of total IBA sales by 2024, which represents an additional ~$100m of sales. Our recent acquisition of the Kollaras private label portfolio will help drive this growth, adding quality and value for shoppers and increasing the number of shoppers visiting our retailers’ stores. We now have 26 owned and 35 exclusive label brands, with our initial focus on substantial growth opportunities identified in the wine category. The value beer category is also of interest in our early growth plans, as it is a driver of increasing the number of shoppers coming into our IBA stores. Supply chain flexibility and efficiency Delivering greater choice and increasing efficiencies for our retailers is key to further improving their competitiveness. We are partnering with our suppliers to generate operational efficiencies through simplifying processes and freeing up our retailers’ time to look after their customers. We are also working with suppliers to lower supply chain costs to ensure our retailers can purchase at the lowest possible prices. Our initiatives include further evolving our supply chain capability to support efficiency improvements through introducing ‘One Delivery, One Invoice’ for our retailers. We will also be introducing ‘Endless Aisle’ product access through cross dock and charge-through functionality to provide flexibility for meeting changes in product category consumption trends. Brand awareness and appeal Driving brand clarity for shoppers is an important driver of sales, and achieves cost efficiencies through reduced marketing spend. We have a five-pronged strategy to improve clarity and deliver these improvements. These comprise: humanising our brands – including highlighting our role in local communities; positioning our brands to drive differentiation for our retailers; balancing our marketing with short-term price/promotion and long-term brand building; communicating one message through multiple touch points; and smarter buying and mix of media spend. Customers should expect to see a notable change in how we promote and build awareness of our brands and what they stand for. 21 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther InformationHardware 22 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout UsHardware In Hardware, we are the second‑largest player in the Australian hardware market with a track record of successful acquisitions. Our Independent Hardware Group (IHG) is a leader in Trade with a solid track record of servicing the DIY market. IHG is home to the well-known Mitre 10 brand, as well as the Home Timber & Hardware brand following our acquisition of the business in 2016. Our Hardware pillar was expanded in September last year with the acquisition of a majority stake in Total Tools Holdings, franchisor to the largest professional tools market in Australia. This has taken the combined IHG and Total Tools network to ~730 stores located in metro and regional areas across the country with sales of over $3.5bn. The Hardware pillar performed extremely well in FY21 with very strong DIY sales and a return to growth in Trade. COVID-related restrictions, including lockdowns, drove increased consumer interest in DIY, with many shoppers rediscovering their local hardware store. The strong sales growth was particularly evident in product categories such as paint, garden, outdoor and power tools. The strong growth in DIY, and the retention of many of the shoppers that chose to revisit their local hardware store during COVID, reinforces the improved competitiveness of our stores. Driving this improvement has been the success of our MFuture initiatives including the Sapphire store upgrade program. IHG national network of stores Annette Welsh CEO, Independent Hardware Group WA 39 33 1 NT 4 1 SA 51 27 M10 AND TRUE VALUE HTH AND RELATED BRANDS DISTRIBUTION CENTRES QLD 103 38 1 NSW 95 79 VIC 75 70 1 TAS 24 3 23 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther InformationHardware Whole of House The ‘Whole of House’ strategy is focused on building our leading position in the Trade segment through expanding our range and offer to ensure we are able to supply the vast majority of components used in the building of a house. This presents a significant growth opportunity for IHG as currently we supply ~35% of what a builder requires to build a house. By expanding our range and offer we believe there is an opportunity to significantly increase this, creating growth for our own business while helping deliver efficiencies and savings for our customers and adding value for the builder. We have developed a dedicated sales team to work closely with our customers and have alliances in place to ensure that our supply offer includes the key components of a house build including Foundations, Frame and Truss, Lock Up, Fix and Fit Out. We are developing a new showroom concept (Design 10) that displays the many category options that IHG can supply including kitchens, appliances and laundry products to ensure builders and their customers are provided with a ‘Whole of House’ offer. Leading digital capability IHG has for several years invested in and developed a digital platform which has seen customer uptake grow strongly. This has helped ‘future-proof’ the Trade business and grow DIY, with leading initiatives such as Click ‘N’ Collect and Click ‘N’ Deliver enhancing our retailers’ competitive position. The benefit of our investment in digital platforms was particularly evident during the recent COVID lockdown periods, which saw many new customers utilise our digital platform. Our website traffic in FY21 has seen up to 1.2m visitors per month, an increase of ~70% on the prior year. Online sales increased 122% with the number of transactions and units sold online up significantly, giving us confidence to continue accelerating the investment in our digital platform and offer. Harnessing our digital technology, including the use of data, analytics and insight information, as well as loyalty and customer insights, enables our retailers to make the best decisions for their businesses and their stores. Our accelerated investment in digital, especially in the execution of our Trade technology, will enable us to enhance this service to our retailers and their customers, helping them to manage more effective and efficient businesses. Hardware continued Strategic focus Our focus over the remaining three years of the MFuture program centres on further building our position in Trade, growing DIY and being a low-cost leading hardware wholesaler with retail experience. Our key growth initiatives include the acceleration of our Sapphire store upgrade program, our ‘Whole of House’ strategy aimed at increasing our share of the supply component of building a house, and the acceleration of our leading digital capability. Sapphire store upgrade program The successful Sapphire program has been designed predominantly to grow our DIY business with a strong focus on store refurbishments. Our objective is to ensure stores across the IHG network are leading edge and tailored to each store’s unique location and the local community it serves. This includes having the right product categories to engage and support local shoppers with a strong DIY range and service offer. Late last year we celebrated a milestone for the program with completion of our 100th Sapphire Store upgrade. By the end of FY21, we had completed 130 Sapphire store upgrades, which is an outstanding result given the additional COVID-related challenges in the year for both our Hardware team and IHG retailers. Our original target was to have 200 stores upgraded by 2022, however the success of the program and the resurgence in DIY from the home consumer has led to a significant increase in demand from retailers to upgrade their stores. We are now targeting to have 300 stores upgraded by 2025. The Sapphire store program has delivered strong returns for our retailers since its inception. Average retail sales growth following stores being upgraded through the program has been greater than 17% p.a., which increased to over 25% in FY21 reflecting the impact of COVID on DIY sales. Sunlite Mitre 10 Paddington Sunlite Mitre 10 first opened in Paddington, Sydney in 2015. The success of the store and the Sunlite Group more broadly resulted in owner Steven Czeiger embarking on his sixth Sapphire transformation project in 2021. Steven took the opportunity to expand into the next-door building, doubling the store’s footprint. The increased space has provided the ability to offer a leading garden décor and green life space as well as a new trade area. Conveniently located on the high street the store is now home to three floors of hardware retail. 24 Metcash Annual Report 2021 24 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorAbout UsTotal Tools National Store Network Paul Dumbrell CEO Total Tools Holdings WA 9 NT 1 SA 6 QLD 19 VIC 31 NSW 20 ACT 1 TAS 2 Total Tools We were excited to announce, in September 2020, the acquisition of a majority stake in Total Tools Holdings (TTH), the franchisor to the largest professional tools network in Australia with ~90 bannered stores across Australia. The Total Tools business has been built by franchisees and has operated for over 30 years. Starting out as a buying group of eight stores, the business has grown to now be the number one professional tools business in Australia. It is a complementary business to IHG, targeting tradies that use professional tools for a living with an unrivalled range of the best professional brands in the world, together with professional service solutions and advice. It is the retailer of choice for major tool suppliers and has long-term relationships with major tool suppliers such as Milwaukee, Makita and DeWalt to name a few. Total Tools has a very loyal customer base with its Insider Rewards loyalty program having over 1.2m members, representing more than 86% of its sales base (excluding commercial). Its large format stores have, on average, around 10,000 product lines with modern store layouts and eye-catching signage for easy customer navigation. Like IHG, Total Tools has a store upgrade program to further enhance customer experience, with 64 stores completed to date. Average store growth post refurbishment has been on average >15%, and it expects to refurbish a further 24 stores over the next three years. Total Tools has significant growth opportunities through the expansion of its store network and the acquisition of an ownership interest in a select number of stores. The store growth program was well underway at the time of our acquisition, with plans to open eight to 10 new stores each year with a target network size of 130 stores by 2025. The acquisition by Metcash provides Total Tools with funds to support the store expansion program, as well as the expertise in running joint venture and company-owned stores. Total Tools acquired a majority interest in 12 joint venture stores in December 2020 and there are plans in place to convert more franchisee stores to joint venture stores over the next three years. Total Tools has a history of strong performance, and this continued in FY21 post the acquisition. In June 2021, Metcash announced that it had increased its holding in Total Tools from 70% to 85%, and it has a pathway to full ownership by the end of FY24. 25 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther InformationSustainability Report 1. HIGHLIGHTS Greenhouse Gas EMISSIONS REDUCED 14% Waste to landfill REDUCED 11% Business2Business plastic wrapping reduced by 100 t p.a. Gender PAY GAP 1% DONATIONS OF 850,000 meals to food rescue organisations Metcash people engagement survey SCORE UP ~20% Donations to local community ORGANISATIONS ~$3m via IGA Community Chest 2030 aligned Science-Based 42% reduction Target IN GHG EMISSIONS Awards - WGEA Employer of Choice, Mental Health Australia, FlexReady 2025 target set for 100% reusable, recyclable or compostable packaging 2. MESSAGE FROM GROUP CEO I would like to welcome you to our first annual Sustainability Report. This new format report replaces our previous practice of having a more abbreviated Corporate Social Responsibility section in the Annual Report. Metcash has always prided itself on being a responsible business, and we acknowledge that this responsibility extends to all our stakeholders, including investors, customers, suppliers, retail partners and the community. Together with our network of independent retailers, we are committed to doing our part to create a sustainable future for ourselves and for future generations. Our team members want to be inspired to work for a business that looks after its people and the environment, and our customers expect that the products we offer are sourced sustainably and responsibly. As a reflection of our commitment, this year we embedded sustainability into our corporate vision; and we are continuing to work on further integrating sustainability into all aspects of our business including targets, metrics and transparency. FY21 included significantly increasing the number of sustainability projects across the organisation, and I am pleased with how much we achieved despite the additional time requirements and challenges associated with COVID. Some notable achievements included further reducing our carbon footprint and waste to landfill, becoming a signatory to the Food and Grocery Code of Conduct, the setting of a 2030 science-based emissions reduction target, materially improving our employee engagement score and further progress on people initiatives which led to receiving a number of prestigious employer awards and citations. Metcash and our independent retailers are well known for supporting local communities and this year was no exception with over $3m being donated to ~1,450 local organisations through our Community Chest Program, which is in addition to the donations many of our retailers make in their local communities. From a reporting perspective, this year’s Sustainability Report represents the first step in our roadmap to a more holistic approach to sustainability reporting. Going forward, we expect to be able to report in alignment with the Global Reporting Initiative (GRI) by 2023. Further information on our sustainability initiatives and achievements this year is detailed in the following report. I trust you find it informative. Jeff Adams Group CEO 26 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Sustainability Report 3. OUR PEOPLE Diversity and inclusion To fulfil our purpose of Championing Successful Independents and becoming ‘A Favourite Place to Work’, we recognise that our people are our most valued asset, with belonging and inclusion fundamental to our culture and core values. We recognise that each person has unique strengths and that high performance is underpinned by embracing those strengths. We maintain an unwavering focus on building and supporting a diverse and inclusive culture to better serve our communities and customers. We promote an environment where our people feel safe, recognised, valued and able to bring their most authentic selves to work. We are committed to championing and achieving diversity awareness, gender equality, gender pay equity, promotion and leadership support, flexible working as well as policies and initiatives that support all people across the organisation. We all have a part to play in promoting diversity and belonging, supporting equal opportunity and respecting others. We have no tolerance for unlawful discrimination, bullying, harassment or victimisation which includes having no tolerance of gender-based harassment and discrimination, sexual harassment and bullying. We regularly analyse and report gender pay statistics to the People and Culture Committee, with a firm commitment from the Board to address like-for-like salary gaps via the dedicated gender pay equity budget, in addition to the annual Pay Review. We analyse commencement salaries by gender to ensure there are no pay gaps at the beginning of the employee life cycle and consciously consider promotion salary adjustments to mindfully manage pay parity. We conduct a final review of pay equality as part of our annual remuneration review to avoid any unconscious bias in pay decisions. By investing in our leadership and developing constructive and mindful leaders, we build leadership capability and leaders who role model our Metcash expectations of behaviour in relation to a culture of inclusion. We overlay this with a regular review of our talent pipeline in relation to gender split to enable diversity of thought. Our talent acceleration programs are designed to strengthen the talent pipeline and provide mentoring support for all team members with mentors of any gender. A range of programs have been implemented over recent years to support diversity and enhance inclusion in our workplace. These include: ظ Promotion and leadership support of flexible working arrangements, including start/finish times, shift options, job sharing and working from home ظ Closing the gender pay gap to ~1% ظ Establishing a Diversity and Inclusion Council and championing gender equality across the business ظ Tailored parental leave policies for all genders to support births, stillbirths, surrogacy and adoption ظ A campaign to attract a full range of candidates to traditionally male-dominated roles such as logistics ظ Group CEO being a Gender Pay Equity Ambassador with the Workplace Gender Equality Agency (WGEA) ظ A commitment to leadership development and acceleration with programs in place for our top 500 leaders, including covering inclusivity ظ Modification of any language that research has indicated will deter a full range of candidates from applying for positions This year Metcash received its third consecutive Employer of Choice citation from the Workplace Gender Equality Agency, reflecting our commitment to our people, our purpose and our vision. We believe there is much to be proud of in how Metcash has addressed, and continues to commit to, diversity, inclusion, gender equality, gender pay equity and balance for all employees. Metcash Careers Ambassadors Eric Feng Financial Controller, Metcash Liquor Lindy Belleza Service Delivery and Operations Specialist, Metcash Food 27 Our People & Our BoardFinancial ReportDirectors’ ReportOther InformationSustainability Report continued Culture and engagement Our aim in employee engagement is to achieve continuous improvement. We measure employee engagement annually using the ‘Say, Stay and Strive’ model which outlines how much our employees advocate for us as an employer, their willingness to remain with us and their willingness to put in discretionary effort to get the job done. We measure six engagement questions, 45 experience questions, three WGEA (Workplace Gender Equality Agency) and five open-ended questions. All of our team members are provided with the opportunity to complete the survey and provide honest, anonymous feedback. This year, all Pillars and functions were represented in the 4,595 people having their say (~80% of our people). Our overall engagement score for FY21 improved ~20% to 57% and despite challenging work conditions, a number of our teams recorded scores in the ANZ top quartile. Health and safety While we are passionate about supporting successful independents, we are just as passionate about health and safety and the role we all have in creating safe and healthy workplaces. We believe that how we perform our daily tasks can affect not just our own safety, but also the safety of those around us. Safety culture Our actions and the way we do things shape the safety culture of Metcash as an organisation. Total Reportable Injury Frequency Rate (TRIFR) Our key safety measure of TRIFR was slightly above the prior year at 27.1 (FY20: 26.8) reflecting increased complexity associated with the impacts of COVID and the cycling of higher labour hours. The significant efforts of our safety team over the past four years are reflected in a ~30% reduction in the TRIFR measure. Plans are in place to further improve our safety performance in FY22. COVID-Safe Metcash continues to work closely with all levels of government in putting COVID-Safe plans in place at all of our sites, and regularly reviews and updates procedures in line with public health orders. Our focus on ensuring our essential workers remain safe at work has varied during the year depending on the level of risk, but included: ظ Implementing COVID-Safe into pre-shift checklists and procedures ظ Increased cleaning for our high touch surfaces ظ Hand sanitiser stations in our workplaces and stores ظ Temperature checking ظ Physical distancing measures implemented in our indoor areas such as meeting rooms, offices and canteens ظ Creating shift bubbles to reduce exposure ظ Implementing face mask protocols where mask wearing became mandatory ظ Adapting quickly to safely support our team members who could continue working from home, including ergonomic considerations We remain committed to the continuous reinforcement of zero harm, which includes preventing work-related injury and illness for employees, visitors, contractors and members of the public, as well as zero harm in relation to pollution in our community. Our SaferMe and SaferMetcash programs acknowledge the role that each of us can play in preventing workplace incidents and injury. Regular communication with our people has focused on encouraging them to follow protocols, including providing information on hygiene, physical distancing, staying at home and getting tested if unwell and providing wellbeing support. Our safety team has done an extraordinary job by also providing additional safety, health and wellbeing support to our independent retailers when needed. Lead indicators Targets for lead indicator activities have been set at all levels including safety engagement conversations, safety communications, safety workplace inspections, hazard reporting and rectification. Pleasingly, our lead indicator metrics all trended positively in FY21 with metrics exceeding targets by 29% for safety engagement conversations, 95% for safety communications, 57% for safety inspections and 56% for hazards reported. Initiatives We continue to invest in wearable technologies at 10 pilot sites to drive a reduction in the risk of manual handling causing injuries to our team members. This technology has assisted a number of sites to identify manual handling injury risks. The pilot is being expanded in FY22 to an additional two sites for further evaluation. Significant work was undertaken in the year to reduce our transport safety and chain of responsibility (COR) risks. This included investing in new infrastructure and the replacement of a weighbridge at our Laverton, Victoria Distribution Centre. The investment has delivered improved efficiencies and compliance in using the weighbridges, with trucks no longer needing to stop for their weigh ticket. We continued to have a strong focus on pedestrian and mobile plant/ vehicle interactions, which historically have been high risk areas. This year included investing in a pilot for wearable sensor technologies to improve separation of forklifts and delivery drivers, and the installation of state-of-the-art segregation technologies in our new Distribution Centre’s in South Australia and Berrinba in Queensland. 28 Metcash Annual Report 2021 Health and wellbeing To help our team members thrive, we have a best-in-class holistic health and wellbeing program, HealthMet. The pillars of the program aim to meet the health needs of our team by supporting physical health, mental health, financial health and community purpose. Together, the program helps our people bring their best self to work by learning healthy habits to get healthy and stay healthy. Metcash encourages and provides flexible working practices, onsite gyms, online gym classes and partnerships with over 400 gyms and studios across Australia so that our team members can continue to be active. Our people can access mental health support around the clock no matter where they are. A new partnership was established with Benestar, specialists in employee physical, social and psychological wellbeing. Results to date have been very positive with improved utilisation of the proactive support structures. We also extended this support to our independent retail network. More than 3% of our workforce has become, or is in the process of becoming, Mental Health Accredited. A further 5% of our people are participating in the Metcash Mental Health Program. These initiatives helped Metcash be awarded Gold Accreditation by Mental Health Australia. Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Sustainability Report 4. OUR PLANET Energy and emissions Metcash defines its operational boundary for the purposes of calculating Scope 1 and 2 emissions as being any entity in which Metcash or its subsidiaries have operational control, as defined by the operating policies test under the National Greenhouse and Energy Reporting Act 2007. Metcash has 92 facilities over which it has operational control. These include: ظ Distribution Centres (5) ظ Independent Hardware Group (42) ظ Metcash Food (28) ظ Australian Liquor Marketers (16) ظ Corporate (1) We calculate our GHG emissions using the Greenhouse Gas Protocol and annually submit an Emissions and Energy Report to the Clean Energy Regulator. Total emissions reported under National Greenhouse and Energy Reporting System (NGERS) in FY21 were 72,948 tonnes CO2-e, which represents a 14% reduction on the prior year (FY20: 85,433 tonnes CO2-e). Emissions reported under NGERS in FY22 will incorporate sites related to Total Tools Holdings and Total Tools joint venture stores following their acquisition in FY21. Total fuel consumption from non-renewable sources was 412,551 GJ. Grid electricity use, our largest source of emissions, reduced 11% to 84,244 MWH in FY21 from 89,356 MWH in FY20 (as reported under NGERS). Going forward, we intend to also report our emissions using a GHG intensity per square metre of floorspace under operational control measure. We will also be adopting processes to calculate our Scope 3 emissions, recognising that a significant proportion of our climate change impact stems from these emissions. Emissions targets In FY20, Metcash set a target of a further 10% reduction in emissions by FY25. Having exceeded this target in FY21, work was undertaken to establish a 2030 science-based emissions reduction target. Metcash supports Australia’s commitment to the Paris Agreement, limiting global warming to 2 degrees above pre-industrial levels. As part of this commitment, we investigated both a 1.5 degree and a below 2 degree warming scenario for our own operations and determined a baseline GHG emissions inventory using data collected from our National Greenhouse Gas Reporting. The July 2019 to June 2020 NGERS emissions levels were chosen as the baseline year, as this period is more in line with our normal business activities and largely outside the influence of the COVID pandemic. A forecast was then made as to the ‘business-as-usual GHG trajectory’ of existing sites and operations out to 2030. This work included a review of our reported emission sources, being electricity, stationary fuels (natural gas, LPG and diesel), transport fuels (diesel, ethanol E10, LPG and petrol) and refrigerant gases. Our emissions profile GHG emissions by type (tCO2-e,%) Electricity: 92% Transport fuel: 5% Stationary fuel: 2% Refrigerants: 1% Electricity consumption is by far the largest source of Metcash’s emissions, and therefore the main area of focus for emission reduction opportunities. Distribution centres account for more than half of Metcash’s total electricity consumption. Electricity consumption (%) by division* Distribution centres: 54% Wholesale: 22% Hardware: 11% IGA: 9% ALM: 3% Corporate: 1% *Includes: ظ Distribution Centres: Capital City Food and Liquor DCs ظ Wholesale: Campbells ظ IGA: Supermarkets + Food operations ظ Hardware: Hardware DCs + Mitre 10 + HTH + Total Tools ظ ALM (including regional DCs) ظ Corporate offices 29 Our People & Our BoardFinancial ReportDirectors’ ReportOther InformationSustainability Report continued Subsequent to the scenario modelling, Metcash adopted a 1.5-degree warming scenario target, resulting in 42% emissions reduction by 2030. Metcash also developed an interactive net zero pathway tool to be used in determining the appropriate blend of emissions reduction opportunities, such as energy efficiency, renewable energy and carbon abatement, required to reach the 2030 goal. Reduction opportunities are ranked based on achievability and return on investment. Identified emissions reduction opportunities include: ظ Onsite Solar PV ظ Refrigeration system optimisation ظ LED retrofits at some remaining sites ظ Lighting control opportunities including lux sensor and occupancy sensor control ظ High-GWP refrigerant phase out ظ Natural gas elimination through electrification ظ Further forklift electrification ظ Improved batteries and battery charging technology for electric forklifts ظ Energy sub-metering ظ Offsite renewables (via PPAs) ظ Offsets Net zero pathways for various emission sources Other Fuels/emission sources In December 2020, Metcash opened its new distribution centre in Gepps Cross, South Australia replacing the Kidman Park, South Australia warehouse. Metcash worked closely with the landlord, Charter Hall, to ensure the new facility obtained a 5 Star Green Star Design As-Built rating. In addition to a 1MW solar PV installation, which abates 645 tonnes CO2e per annum, the facility has extensive natural ventilation and light, end of trip facilities and wellness spaces. Metcash is committed to operating the facility in line with Green Star requirements, harvesting and utilising rainwater and ensuring at least 50% of all site generated waste is diverted from landfill. Climate risk As Australia’s leading wholesaler and distributor we play a key role in supplying and supporting a large network of independent retailers across Australia. While we were not significantly impacted by flooding events in regional New South Wales, cyclones in Queensland and bushfires in multiple States, we recognise the potential impacts climate change could have on our supply chain and our ability to service our customers. We support the decarbonisation of our industry and building the resilience of our business to adapt to a changing economy and physical environment. i l s e g o o n h c e t n o i s s i m e e v i t a g e N / s t e s ff O Energy efficiency and mitigation OR Electrification Electricity Energy efficiency Onsite Solar PV Offsite Renewables 30 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Sustainability Report How we manage climate change Governance Establishing an appropriate governance structure is a pre-requisite for embedding environmental, social and governance (ESG) factors throughout Metcash. Our ESG Council will have accountability and responsibility for reporting on and implementing climate change initiatives at Metcash, as illustrated in the governance structure below. The ESG Council will prepare a dashboard of progress against its initiatives together with other relevant reporting data for regular presentation to the Group Leadership Team (GLT) and the Board. The newly formed ESG Council will comprise representatives from all Pillars across key functions of the business, including corporate responsibility, strategy, merchandise, marketing, risk, property, logistics, finance, people and culture and health and safety. The Council is chaired by the Group CEO. Metcash Board (cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:29)(cid:25)(cid:24)(cid:23)(cid:30)(cid:22)(cid:21)(cid:27)(cid:20)(cid:22)(cid:27)(cid:19)(cid:30)(cid:20)(cid:29)(cid:30)(cid:30)(cid:25)(cid:26)(cid:18)(cid:22)(cid:17)(cid:16)(cid:30)(cid:22) (cid:15)(cid:27)(cid:14)(cid:28)(cid:13)(cid:26)(cid:12)(cid:11)(cid:29)(cid:22)(cid:29)(cid:17)(cid:20)(cid:13)(cid:17)(cid:30)(cid:18)(cid:12)(cid:22)(cid:25)(cid:26)(cid:10)(cid:23)(cid:9)(cid:8)(cid:25)(cid:26)(cid:18)(cid:22)(cid:25)(cid:17)(cid:29)(cid:22) (cid:20)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:29)(cid:30)(cid:22)(cid:17)(cid:27)(cid:22)(cid:10)(cid:23)(cid:25)(cid:14)(cid:13)(cid:17)(cid:30)(cid:22)(cid:10)(cid:16)(cid:13)(cid:26)(cid:18)(cid:30)(cid:22)(cid:20)(cid:25)(cid:29)(cid:7)(cid:29) (cid:13)(cid:26)(cid:8)(cid:22)(cid:27)(cid:28)(cid:28)(cid:27)(cid:20)(cid:17)(cid:9)(cid:26)(cid:25)(cid:17)(cid:25)(cid:30)(cid:29) Audit, Risk and Compliance Committee (ARCC) (cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:29)(cid:25)(cid:24)(cid:23)(cid:30)(cid:22)(cid:21)(cid:27)(cid:20)(cid:22)(cid:30)(cid:26)(cid:29)(cid:9)(cid:20)(cid:25)(cid:26)(cid:18)(cid:22)(cid:30)(cid:6)(cid:30)(cid:10)(cid:17)(cid:25)(cid:19)(cid:30) (cid:14)(cid:13)(cid:26)(cid:13)(cid:18)(cid:30)(cid:14)(cid:30)(cid:26)(cid:17)(cid:22)(cid:27)(cid:21)(cid:22)(cid:21)(cid:25)(cid:26)(cid:13)(cid:26)(cid:10)(cid:25)(cid:13)(cid:23)(cid:22)(cid:13)(cid:26)(cid:8) (cid:27)(cid:17)(cid:16)(cid:30)(cid:20)(cid:22)(cid:14)(cid:13)(cid:17)(cid:30)(cid:20)(cid:25)(cid:13)(cid:23)(cid:22)(cid:24)(cid:9)(cid:29)(cid:25)(cid:26)(cid:30)(cid:29)(cid:29)(cid:22)(cid:20)(cid:25)(cid:29)(cid:7)(cid:29)(cid:5) (cid:25)(cid:26)(cid:10)(cid:23)(cid:9)(cid:8)(cid:25)(cid:26)(cid:18)(cid:22)(cid:10)(cid:23)(cid:25)(cid:14)(cid:13)(cid:17)(cid:30)(cid:22)(cid:20)(cid:25)(cid:29)(cid:7)(cid:29) Metcash Risk Profile and Risk Management Framework (cid:15)(cid:23)(cid:25)(cid:14)(cid:13)(cid:17)(cid:30)(cid:22)(cid:20)(cid:25)(cid:29)(cid:7)(cid:22)(cid:25)(cid:29)(cid:22)(cid:25)(cid:26)(cid:10)(cid:27)(cid:20)(cid:28)(cid:27)(cid:20)(cid:13)(cid:17)(cid:30)(cid:8)(cid:22)(cid:25)(cid:26)(cid:17)(cid:27)(cid:22) (cid:17)(cid:16)(cid:30)(cid:22)(cid:30)(cid:2)(cid:25)(cid:29)(cid:17)(cid:25)(cid:26)(cid:18)(cid:22)(cid:20)(cid:25)(cid:29)(cid:7)(cid:22)(cid:28)(cid:20)(cid:27)(cid:21)(cid:25)(cid:23)(cid:30)(cid:22)(cid:13)(cid:26)(cid:8)(cid:22) (cid:21)(cid:20)(cid:13)(cid:14)(cid:30)(cid:1)(cid:27)(cid:20)(cid:7)(cid:22)(cid:29)(cid:27)(cid:22)(cid:17)(cid:16)(cid:13)(cid:17)(cid:22)(cid:10)(cid:23)(cid:25)(cid:14)(cid:13)(cid:17)(cid:30)(cid:22)(cid:20)(cid:25)(cid:29)(cid:7)(cid:22) (cid:10)(cid:13)(cid:26)(cid:22)(cid:24)(cid:30)(cid:22)(cid:27)(cid:19)(cid:30)(cid:20)(cid:29)(cid:30)(cid:30)(cid:26)(cid:22)(cid:13)(cid:17)(cid:22)(cid:17)(cid:16)(cid:30)(cid:22)(cid:29)(cid:30)(cid:26)(cid:25)(cid:27)(cid:20)(cid:22) (cid:14)(cid:13)(cid:26)(cid:13)(cid:18)(cid:30)(cid:14)(cid:30)(cid:26)(cid:17)(cid:22)(cid:23)(cid:30)(cid:19)(cid:30)(cid:23) Group Leadership Team (GLT) (cid:4)(cid:10)(cid:10)(cid:27)(cid:9)(cid:26)(cid:17)(cid:13)(cid:24)(cid:23)(cid:30)(cid:22)(cid:21)(cid:27)(cid:20)(cid:22)(cid:27)(cid:19)(cid:30)(cid:20)(cid:13)(cid:23)(cid:23)(cid:22) (cid:25)(cid:14)(cid:28)(cid:23)(cid:30)(cid:14)(cid:30)(cid:26)(cid:17)(cid:13)(cid:17)(cid:25)(cid:27)(cid:26)(cid:22)(cid:27)(cid:21)(cid:22)(cid:3)(cid:30)(cid:17)(cid:10)(cid:13)(cid:29)(cid:16)(cid:11)(cid:29)(cid:22) (cid:10)(cid:23)(cid:25)(cid:14)(cid:13)(cid:17)(cid:30)(cid:22)(cid:10)(cid:16)(cid:13)(cid:26)(cid:18)(cid:30)(cid:22)(cid:25)(cid:26)(cid:25)(cid:17)(cid:25)(cid:13)(cid:17)(cid:25)(cid:19)(cid:30)(cid:29) ESG Council (cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:29)(cid:25)(cid:24)(cid:23)(cid:30)(cid:22)(cid:21)(cid:27)(cid:20)(cid:22)(cid:25)(cid:26)(cid:10)(cid:27)(cid:20)(cid:28)(cid:27)(cid:20)(cid:13)(cid:17)(cid:25)(cid:26)(cid:18)(cid:22) (cid:10)(cid:23)(cid:25)(cid:14)(cid:13)(cid:17)(cid:30)(cid:22)(cid:10)(cid:16)(cid:13)(cid:26)(cid:18)(cid:30)(cid:22)(cid:20)(cid:25)(cid:29)(cid:7)(cid:22)(cid:14)(cid:25)(cid:17)(cid:25)(cid:18)(cid:13)(cid:17)(cid:25)(cid:27)(cid:26)(cid:22) (cid:13)(cid:10)(cid:17)(cid:25)(cid:27)(cid:26)(cid:29)(cid:22)(cid:13)(cid:26)(cid:8)(cid:22)(cid:14)(cid:30)(cid:13)(cid:29)(cid:9)(cid:20)(cid:30)(cid:29)(cid:22) (cid:25)(cid:26)(cid:17)(cid:27)(cid:22)(cid:17)(cid:16)(cid:30)(cid:22)(cid:24)(cid:9)(cid:29)(cid:25)(cid:26)(cid:30)(cid:29)(cid:29) Strategy The Metcash Climate Risk and Opportunities Register was established in FY20 as part of our program to assess the impact of climate change on our business. The program included a qualitative analysis of the likelihood and consequence of climate risks and opportunities in our value chain in alignment with Metcash’s Enterprise Risk Management matrix. In line with the Intergovernmental Panel on Climate Change (IPCC) for a medium-term time horizon of 2030, two climate scenarios were used for this analysis as follows: IPCC Representative Concentration Pathway (RCP) Global warming scenario Description 2.6 8.5 1.5°C warming 4.3°C warming Ambitious mitigation with a peak in emissions around 2020, followed by a rapid decline. Minimal mitigation with a continuous rapid rise in emissions. The highest risk found was an increase in the frequency and severity of acute physical climate change events which will likely result in rising insurance premiums, leading to increased operating expenditures over the short (1-3 years) and medium (3-10 years) term. In FY21, insurance premiums increased partly due to the cost of catastrophe claims across the insurance market. No transition risks were assessed as high risk due to our efforts in managing our carbon footprint. Additional steps in our climate risk response included: ظ A ‘deep dive’ into the impact of a 1.5°C and 4.3°C scenario on our physical assets based on our emissions and energy use. This will include the development of climate risk mitigation plans for all key physical assets ظ Discussions with our landlords on their climate engagement plans ظ Commissioning of solar panels at our new Greenstar facility in South Australia To further enhance our understanding of key risks and opportunities, we will be undertaking quantitative scenario analysis and modelling. This is expected to build on the scenario analysis conducted in FY20 to qualitatively inform our strategy at a high level. Management of the key risks and opportunities identified will be translated into operational plans. Risk management Our Group Risk and Assurance team facilitates the process for identifying and assessing Metcash’s risk profile, focusing primarily on those strategic and operational risks that are most important for Metcash. Strategic risks are typically considered over longer time horizons, while operational risks are considered with shorter (1-10 year) time horizons. In our Climate Change Risk and Opportunity Register, inherent physical and transition climate risks and opportunities are classified on a scale from very low to extreme and are scored using the multiplication of consequence and likelihood ratings. As we are in the preliminary stages of embedding the climate risk and assessment process into our strategic and operational risk assessment process, the climate-related risks identified in our Climate Change Risk and Opportunity Register have not yet been integrated into our existing risk management systems and tools. This is planned to be incorporated and reviewed by the Board in FY22. Climate-specific risks and opportunities will be reviewed and updated on an annual basis using the time horizons of short-term (1-3 years), medium-term (3-10 years) and long-term (10-25 years). Measuring our key climate risks will continue to be a complex and challenging task. While increased insurance premiums will likely have the highest impact on Metcash, there is currently no publicly available predictive tool for isolating the impact of climate change. We will continue to appraise and determine further metrics for assessing, monitoring and managing our physical and transition impacts. 31 Our People & Our BoardFinancial ReportDirectors’ ReportOther InformationSustainability Report continued Looking forward Our roadmap for deepening our alignment with the Task Force on Climate-Related Financial Disclosures (TCFD) and furthering our understanding and management of climate change impacts is shown below: Action Pre-Fy22 FY22 FY23 FY24 Governance Align with internal stakeholders on level of climate ambition and the FY20 Climate Change Risk and Opportunities Register Board and management capacity building activities Clarify internal structure for climate-related accountabilities, including accountabilities and responsibilities for risk management at each level and establish an ESG Council Strategy Undertake climate scenario analysis and develop Climate Change Risk and Opportunity Register Study substitutes for key commodity groups Physical asset deep-dive and development of climate risk mitigation plans for all physical assets Deep-dive analysis on extreme weather events, including modelling Continue use of scenario analysis in strategic decision making Risk management Integrate climate risk into corporate risk register Document risk owners, control owners and actions in the corporate risk register Integrate climate risk management into existing enterprise risk management framework, systems and tools Treat and manage key risks Metrics and targets Calculate and monitor Scope 3 emissions Identify metrics for key risks Establish targets for key risks and align to pillar and enterprise strategies Monitor performance against targets and metrics Obtain third party assurance over Scope 1, 2 and 3 emissions Complete Ongoing Future activity 32 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout UsSustainability Report Waste and recycling Metcash embarked on a range of new projects in FY21 to further minimise waste to landfill. One of our largest waste generators is our stretch film used for pallet wrapping. Metcash investigated and then implemented new technology that employs thinner, yet stronger materials, optimising pallet stability while reducing unnecessary plastic and cardboard core waste. The new technology has reduced the waste of this plastic by over 100 tonnes on a per annum basis. Another waste reduction project involved re-designing the core of our pallet wrap to include a reinforced edge. This enables the film roll to withstand edge damage without losing its integrity, which is a common contributor to plastic waste in warehouses. This added feature, together with increased roll length, has resulted in 46,480 cardboard cores being saved from recycling. The new stronger technology has also led to less damage to product in transit, further reducing product loss and waste. Other waste initiatives in FY21 included: ظ Improvements to signage in warehouses, commercial kitchens, canteens and offices to encourage recycling and educate team members on the recyclability of items ظ Diverting timber pallets from general waste bins to timber recyclers ظ Implementation of the ‘Simply Cups’ coffee cup recycling solution A continued focus on keeping waste out of landfill resulted in the diversion of 3,623 tonnes of material in FY21. An additional 417 tonnes of food was diverted from landfill through the collection of edible product by our food rescue partners OzHarvest, Foodbank and Food For Change. Overall, our waste-to-landfill diversion rate improved by 10% in FY21 compared to the prior financial year. Battery recycling With over 300m household batteries ending up in landfill and a considerable number of power tool batteries not being recycled, our Hardware pillar is launching an in-store battery recycling drop-off service. The rollout has commenced nationally in Total Tools and at Mitre10 sites in Victoria and South Australia. The program is being extended to IGA stores later this year. Responsible sourcing Metcash is committed to being a responsible member of the communities in which we work and live, and we expect the same of our suppliers. We are on a continual journey to improve our policies, systems and targets associated with achieving this outcome. This year we had further engagement with our retailers and sustainability consultants to determine which issues are most important for our retailers and communities. This helped guide our focus for responsible sourcing commitments and the associated initiatives required to ensure they are delivered. This included agreeing with our retailers targets to ensure private label suppliers meet our strict requirements across responsible practice and environment, and animal welfare. A differentiating factor for our independent store networks is that each store is able to source products from local suppliers and artisans within their regional area. In addition to our private label initiatives, we are supporting our retailers to work towards responsible sourcing goals with their local suppliers by delivering toolkits and training to store owners. The toolkits being generated include guidance on supplier screening, renewable energy contracts, circular economy and recycling opportunities to name a few. Through these programs, we are also actively working with our suppliers to mitigate the social and environmental impacts of their products. 33 Our People & Our BoardFinancial ReportDirectors’ ReportOther InformationAnimal welfare We care about how the animals in our supply chains are treated and we are committed to ensuring their good physical and mental health is maintained. To help achieve this, specific targets have been set for 2025. The following targets relate to our private label products: ظ Primary beef cuts and ingredients to be free of hormone growth promoting agents ظ Shell eggs to come from free range certified farms ظ All egg ingredients to come from cage free systems ظ Primary poultry cuts and ingredients are using RSPCA approved chicken and turkey ظ Primary pork cuts are using APIQ (Australian Pork Industry Quality Assurance Program) approved sow stall free pork We are working with shoppers and our suppliers to encourage the making of choices aligned with animal welfare. This has included supporting our suppliers to achieve more stringent certified animal welfare standards and through the provision of in-store information. Sustainability Report continued Responsible practice and environment We know that our biggest impacts on the environment come from the products we source. We want to continue to provide the best quality products for our customers, while also ensuring we are protecting the ecosystems we rely upon and the livelihoods of those in our supply chain. To help achieve these desired outcomes, we are working to ensure the following in relation to our private label products: ظ Food and drink products to support the production of sustainable palm oil. All non-food products and pet food to support the production of sustainable palm oil by 2028 ظ Seafood to be certified to either the Marine Stewardship Council, Aquaculture Stewardship Council, GLOBAL GAP or Best Aquaculture Practices, or be independently assessed against the Metcash Responsibly Sourced Seafood Policy ظ Single ingredient tea, coffee and cocoa to be independently certified to either Rainforest Alliance/UTZ, Fairtrade or Cocoa Horizons by 2025 ظ Timber, pulp, and paper products to be sourced from plantations independently certified by the Programme for the Endorsement of Forest Certification (PEFC) or Forest Stewardship Council (FSC) ظ All products to be sourced from Australian suppliers and farmers first, unless the Australian product quality, supply or innovation is insufficient to meet customers’ needs or there is a requirement for international provenance The year included implementing a number of new initiatives aimed at ensuring we continue to improve and achieve our responsible sourcing goals. These include: ظ Investing in a state-of-the-art Quality Assurance database to capture more granular product information on product ingredients and to improve our reporting capability ظ Launching our FAD-free private label tuna range ظ Ensuring we source 100% FSC and PEFC certified timber products in hardware 34 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout UsSustainability Report Sustainable materials and packaging Metcash continues to be a contributor to the Australian Packaging Covenant Organisation and supports the goals of phasing out unnecessary single-use plastic packaging. We commenced the rollout of the Australian Recycling Label (ARL) on our Black & Gold and Community Co private label ranges in early 2020, and have included the component-level recycling information on-pack on over 200 products in our Food business and will commence the rollout in our Liquor business from September. The rollout will continue for all new private label food and liquor products that are launched or have their packaging redesigned. We were pleased to participate in the ‘Check It Before You Chuck It’ program designed to inform shoppers more thoroughly on how to responsibly dispose of, and recycle, packaging materials to ensure less packaging waste ends up in landfill. In FY21, we continued our partnership with OneHarvest to both reduce plastic packaging and minimise food waste in our Community Co packaged salad range. Our salad bowls have been redeveloped in a first-to-market offer which includes the use of post-consumer recycled content, reducing the reliance on virgin plastics. Our product development team also worked with OneHarvest to convert all forks to 100% recyclable and to introduce 50% post-consumer recycled plastic materials. This equates to the removal of over 15 tonnes of virgin plastic per annum. In addition, an ultrasonic sealing initiative has been developed to reduce the length of plastic used in bagged salads. Approximately 33% of bagging machinery has already been converted with an expectation that this will increase to 77% coverage by the end of 2022. A Metcash cross-departmental working group was formed and worked with external consultants to review the prevalence of single-use plastics in our cutlery, takeaway containers, cups, plates, meat trays, deli containers, bowls, stirrers, straws and bags range. Our merchandise team then reviewed the availability of biodegradable plastics, bioplastics, alternative materials and plant-based fibres to enable the phase-out of unnecessary single-use plastic products. To date, 38 single-use plastic products have been substituted in our Food business. 5. OUR CUSTOMERS Product quality health and nutrition Metcash is committed to the promotion of living healthier and happier lifestyles, and inspiring shoppers to take positive action for their health and the health of their community. With our store network reaching far and wide into regional and remote locations, we play a vital role in servicing the nutritional and dietary requirements of all segments of the community. As part of our aim of making it easier for shoppers to make good food choices, we are working to eliminate the following from our private label food and drink: ظ Artificial flavours and colours ظ Added MSG ظ Genetically modified ingredients ظ Irradiation unless permitted by law or when it delivers scientific benefit, by exemption only ظ Mechanically separated, de-boned and recovered meat as well as advanced meat recovery or extruded bone meat ظ Mechanically desinewed meat We are also working to reduce salt and sugar in line with the Healthy Food Partnership targets, as well as ensuring our private label products have a Health Star rating displayed in line with Australian Government Guidelines. Our IGA Local Matters Community Program includes providing shoppers with healthy recipes, tips on healthy eating and information about other healthy lifestyle behaviours such as exercise. The program includes: ظ A partnership with nutritionists to provide factual and helpful content on how to live healthy lifestyles ظ Recipes focused on health considerations (e.g. heart health, immune boosting, low GI) ظ Promotions and competitions that help communities to thrive ظ Inspiring shoppers with retailer stories on how they support the community and healthy living ظ Partnerships with suppliers or third parties that help promote healthy living, communities, or the environment We continued to add more healthy options for shoppers through the expansion of our Community Co private label range. This included adding new snacking options, as well as conveniently packaged fresh salads. A portion of the sale of each Community Co product is donated to the IGA Community Chest Program. 35 Our People & Our BoardFinancial ReportDirectors’ ReportOther InformationSustainability Report continued 6. OUR PARTNERS AND COMMUNITY Community and charities The IGA Community Chest Program (CCP) supports a wide range of charities and grassroot community groups, including sporting clubs and schools. Donations were made to ~1,450 community groups and charities across Australia, totalling $2.94m. This brings total CCP donations since inception of the program to ~$96m. We also continued to support a number of charities including the Special Olympics Australia, a charity we have proudly supported for almost 30 years. This year we raised over $220k to empower people with intellectual disabilities to participate in sport, helping them to form lifelong friendships and develop skills. This year we celebrated 12 years of partnership with the McGrath Foundation, and we are proud to have raised over $186k in FY21 to fund McGrath Breast Care nurses in our communities. This year we also worked with the Humpty Dumpty Foundation to provide much needed medical equipment for hospitals to help save children’s lives. COVID relief The impacts of COVID led to a significant increase in the number of Australians seeking assistance from charities. Through our partnership with Vinnies, we conducted an IGA Appeal to help those in our local communities that were in need. The sale of IGA Appeal tokens and Community Chest products led to ~$350k being donated to Vinnies to assist those in need with basic costs such as rental and mortgage payments, utility bills and food vouchers. Metcash staff donated an additional $11k to Vinnies and participated in the annual Vinnies CEO Sleepout which is held at venues across Australia. Western Australia bushfire relief Our IGA retail network responded quickly to help Western Australians impacted by the devastating Wooroloo bushfires in February this year. Ben Heptinstall, owner of Supa IGA Stratton, donated care packs to families that were forced to evacuate their homes, while Metcash supplied $45k of gift cards to those impacted. A further $85k was donated to the Western Australia Vinnies bushfire recovery, through supplier donations and sales from the $2 Bushfire appeal tokens. Flood relief We partnered with State Emergency Services to get deliveries to those towns in NSW and South Queensland isolated by floods in the year. Our IGA retailers in NSW partnered with Vinnies to quickly activate a flood support campaign whereby funds raised were directed to those in need through the Vinnies Flood Appeal. In Queensland, our IGA retailers donated ~$60k to GIVIT and Drought Angels to support those impacted by the devastating floods. In March 2020 the IHG Emergency Assistance Fund (EAF) was launched, with IHG matching member contributions to the fund dollar for dollar, giving us a powerful national platform to support communities impacted by natural disaster. The IHG National Advisory Council is the authorising body for the release of all funds, made up of senior store owners from each State. In March 2021, IHG members voted to support BlazeAid and Drought Angels as the official EAF charity partners. In April 2021, $300k was released to support the New South Wales and South East Queensland floods recovery effort, with $200k provided to Drought Angels and $100k to BlazeAid. Food rescue We continued to expand our food rescue program at our Food warehouses and across our independent retailer network, resulting in 417 tonnes of food or more than 850k meals being provided by our partners; Foodbank, OzHarvest and ‘Food For Change’ to those in need. We expanded our partnership with ‘Food For Change’ in the year with the program now operating in 60 IGA stores across New South Wales, South Australia and Victoria. This has resulted in over 300k meals being provided to those in need. The program includes stores being provided with a customised app that connects them to their local food relief agency. We expect to further expand the program in FY22 and continue to collaborate with the New South Wales Environment Protection Authority (EPA) and Green Industries SA to help fund and support the rollout of this important food rescue program. 36 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout UsSustainability Report Labour standards in the supply chain (Modern Slavery) Metcash is committed to continuous improvement in addressing the risk of modern slavery in our operations and supply chain. This year we continued to build on the steps taken last year designed to understand the extent of these risks and prepare a mitigation plan. This included integrating our requirements in relation to modern slavery into supplier contractual terms and conditions, ensuring our Speak Up Policy is applicable to suppliers and their employees, publishing the Metcash Anti-Slavery Policy and conducting further risk analysis and training, including the development of online education modules. To understand more about our suppliers’ risk profile for modern slavery, we asked a selection of our suppliers (631) that were identified in our risk assessment as having elevated risk to complete a self-assessment questionnaire (SAQ). Feedback from the SAQ would be used to evaluate each suppliers’ understanding of modern slavery in their operations, including what policies, processes, audits and third-party affiliations the supplier has. From those contacted, 182 suppliers responded in full or provided evidence of their own Modern Slavery Statements or due diligence activities. Suppliers were assigned a further risk score to prioritise actions for follow-up, with 11 suppliers flagged as high priority. Level of priority Number of suppliers Supplier/Product Profile Suppliers of Metcash’s private label products in the Food pillar were requested to join SEDEX, one of the world’s leading ethical trade membership organisations. Through SEDEX, members are required to perform a self-assessment questionnaire and Metcash is provided with access to independent third-party social audit reports of our suppliers’ production facilities. Currently ~85% of suppliers sites linked to Metcash on SEDEX in FY21 have completed their self-assessment questionnaire or have provided audits on their facilities. This covers 168 sites across 14 countries. The third-party audit findings presented in SEDEX identified a number of non-conformances, allowing our team to assess various critical issues and to engage with these suppliers in relation to corrective action. This process has resulted in a deeper understanding of our risk profile and the appropriate action to take to address, manage and reduce the risk of modern slavery. Suppliers assessed as having critical, major and minor non-compliance issues were deemed high risk suppliers, while suppliers that had other non-compliance not related to human rights were categorised as medium risk suppliers for the purpose of follow up activities. The following table summarises the non-conformances. Category issue Critical Major Minor Total Non-Conformances High priority Medium priority 13 35 Low priority 130 Supplier sources goods or services from high-risk countries while having minimal prevention processes Supplier either sources goods or services from high-risk countries and has modern slavery mitigation policies and processes in place; or does not source from high-risk countries and has no knowledge of modern slavery risks or prevention processes in place Supplier does not source from high-risk countries and has a clear understanding of modern slavery with adequate mitigation policies in place Follow-up activities include requesting suppliers to complete a more detailed SAQ and/or provide further evidence and documentation that enables us to establish how the supplier is mitigating potential risks. Metcash is continuing to pursue those suppliers that have not yet responded to the SAQ. Children and Young Workers Entitlement to Work Health, Safety and Hygiene 2 Management Systems Worker Grievances Regular Employment Wages Working Hours Total 1 1 17 1 1 2 2 1 1 27 2 2 2 3 5 8 1 1 1 5 2 16 25 43 Upskilling our staff and supporting our suppliers Our people are at the forefront of Metcash’s efforts to reduce the risk of modern slavery in our operations and supply chain. To support them in implementing our Anti-Slavery Policy and the Metcash Speak Up Policy, we developed a due diligence framework which serves to help identify, assess and prevent the risk of modern slavery when sourcing and onboarding our suppliers. We also developed e-learning training modules tailored for internal and external audiences to ensure that our employees, retailer partners and our suppliers understand modern slavery. Our aim in the coming year is to empower these audiences to be able to identify possible cases and know what action they can take to mitigate modern slavery risk. Reporting Continuous improvement and learning are integral to the requirements under the Commonwealth Modern Slavery Act 2018. Our reporting framework and an evaluation of our progress, including the effectiveness of our actions, will be included in our second Modern Slavery Statement that is due for submission by 31 October 2021. 37 Our People & Our BoardFinancial ReportDirectors’ ReportOther Information Our People Jeff Adams BA, Business Administration and Management Group CEO, Metcash Group Jeff has over 40 years of retail experience across domestic and international businesses in the United States, Europe, Asia, Central America and the Middle East. Most recently, Jeff was CEO of Operations for Turkey at Tesco Kipa. Our Board Alistair Bell B.Ec (Sydney), CA, MAICD Scott Marshall B.Business Group CFO, Metcash Group CEO, Metcash Food Scott began his career with Metcash in the ALM business over 28 years ago and was appointed CEO of ALM in December 2013. In March 2018 Scott was appointed CEO, Metcash Food. His areas of experience cover warehousing operations and management, sales, retail operations, State general management and marketing management. Alistair joined Metcash in 2020 as the Group CFO. He has extensive capital-markets experience and executive leadership in managing international organisations with portfolios of businesses. Alistair has held various CFO, COO and strategy positions in a range of industries with ASX-listed, private equity and multi-national corporations. Most recently, he was the Group CFO of GrainCorp for almost 10 years. Alistair has broad experience as a Non-executive Director, including as Chairman of Audit and Risk Committees. Annette Welsh CEO, Independent Hardware Group Annette joined Metcash in 2010 and held the roles of GM of Operations and GM Merchandise prior to being appointed CEO of Independent Hardware Group in 2020. Annette has global experience across retail and wholesale and prior to joining Metcash worked for Marks & Spencer and IBM. Robert Murray MA Hons, Economics (Cantab) Non-Executive Chairman Chair of the Nomination Committee, Member of the People and Culture Committee. Jeff Adams BA, Business Administration and Management Group CEO, Executive Director Peter Birtles BSc Hons, FCA, MAICD Tonianne Dwyer BJuris Hons, LLB Hons, GAICD Non-Executive Director Non-Executive Director Chair of the Audit, Risk and Compliance Committee, Member of the Nomination Committee. Member of the Audit, Risk and Compliance Committee, Member of the Nomination Committee. 38 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout UsOur People & Our Board Chris Baddock GradCertBus, GAICD CEO, Australian Liquor Marketers Chris joined Metcash in July 2019 as CEO of Australian Liquor Marketers (ALM). Chris has over 30 years of experience in FMCG including Lion and Woolworths. Most recently Chris was Director of Pinnacle Drinks, a wholly owned subsidiary of the Woolworths Endeavour Drinks Group. David Reeve CIO, Metcash Group David joined Metcash as Chief Information Officer in July 2019. He has over 20 years of experience gained across a wide spectrum of industries including Financial Services, Education, Defence and Airlines. Prior to joining Metcash David was CIO of Macquarie University. He was responsible for the delivery of technology capabilities that enhanced the lives of students and staff as well as the clinicians and patients at MQHealth. Penny Coates BA Hons, Chartered Fellow CIPD, GAICD Chief People and Culture Officer, Metcash Group Penny joined Metcash in 2015 as Chief People and Culture Officer. Penny has extensive international HR and line management experience gained in the retail, financial services and professional services industries. Prior to joining Metcash, Penny worked for TAL as its Chief Customer Service and Operations Officer. Matt Havens BA Hons, MBA Chief Strategy and Transformation Officer, Metcash Group Matt joined Metcash in April 2019 bringing over 25 years of experience in strategy, transformation and growth from his work in the United States, Europe and Asia. Prior to joining Metcash, Matt was a Partner with BCG Digital Ventures where he specialised in customer-led business transformation. Christine Holman MBA, PG Dip Mgt, GAICD Murray Jordan MPA, MACID Helen Nash BA Hons, GAICD Non-Executive Director Non-Executive Director Non-Executive Director Member of the Audit, Risk and Compliance Committee and the Nomination Committee Member of the Audit, Risk and Compliance Committee, Member of the Nomination Committee, Member of the People and Culture Committee. Chair of the People and Culture Committee, Member of the Nomination Committee. Julie Hutton B Asian Studies (Viet), LLB, LLM, GAICD Company Secretary 39 Sustainability ReportFinancial ReportDirectors’ ReportOther InformationDirectors’ Report Directors’ Report For the year ended 30 April 2021 Your Directors submit their report of Metcash Limited (the ‘Company’) and its controlled entities (together the ‘Group’ or ‘Metcash’) for the financial year ended 30 April 2021 (‘FY21’). OPERATING AND FINANCIAL REVIEW 1. METCASH’S BUSINESS MODEL Metcash is Australia’s leading wholesaler and distributor, supplying and supporting over 5,000 independent retailers which form part of our bannered network and several other unbannered businesses across the food, liquor and hardware pillars. Metcash’s retail customers operate some of Australia’s leading independent brands including: IGA, Foodland, Mitre 10, Home Timber & Hardware, Total Tools, Cellarbrations, IGA Liquor and the Bottle-O. Metcash operates a low-cost distribution model that enables independent retailers to compete against the vertically integrated retail chains and other competitors. The Group’s core competencies include: procurement, logistics, marketing, retail development and retail operational support. Metcash operates major distribution centres in all the mainland states of Australia which are complemented by a number of smaller warehouses and a portfolio of corporate and joint venture stores. The Group employs over 7,000 people and indirectly supports employment in the independent retail network. 2. STRATEGIC OBJECTIVES Metcash’s purpose is ‘Championing successful independents’. Metcash’s vision includes: supporting independent retailers to be the best store in town;   being passionate about independents;  being a favourite place to work;  being a business partner of choice for suppliers and independents;   creating a sustainable future. supporting thriving communities; and The strategic vision is underpinned by a number of programs and initiatives across the three pillars (Food, Liquor and Hardware) aimed at supporting our independent retailers. These were outlined at the Investor Day in March 2021 and include store upgrade programs, new store formats and brand clarity, expanding private label brands, core ranging and pricing, marketing support, accelerating eCommerce and system enhancements as well as training and development programs for independent retailers. The Group commenced the MFuture program at the beginning of FY20. This five-year program spans all pillars and support functions and adopts a balanced approach to revenue growth and cost savings. The program has a strong focus on accelerating successful current initiatives, following the shopper into new growth areas, improving the Group’s infrastructure to enable simpler and cheaper processes and ensuring a sustainable cost base into the future. The program aims to deliver competitive and successful independent retail networks across all pillars and match store formats to customers shopping missions. 3. KEY DEVELOPMENTS Acquisition of Total Tools Holdings Pty Ltd and JV Stores (‘Total Tools Group’) In September 2020, the Group acquired 70% of the shares of Total Tools for a total purchase consideration of $56.9 million. Total Tools is the franchisor to the largest tool retail network in Australia with 82 bannered stores nationwide as at 1 September 2020. In December 2020, Total Tools acquired ownership interests of between 51% and 60% in twelve Total Tools independent retail stores (‘JV Stores’) for $42.5 million. Put and call option arrangements exist which enable Metcash to acquire 100% of these businesses during FY24/FY25. Further details are set out in note 13 of the financial report. COVID-19 pandemic The Group has achieved a significant increase in sales revenue across all pillars, stemming both from underlying growth initiatives and also from the shift in consumer behaviour which was initially triggered by COVID-19. During FY21, Metcash was successful in capitalising on these changes by retaining and growing our customer base. Nevertheless, the Group continues to be subject to COVID-19 related volatility and uncertainty in its trading environment and operations, as well as from the dynamic economic landscape. Metcash has retained a provision for COVID-19 related impairments of $10.7 million as detailed in note 3 of the financial report. 40 Metcash Annual Report 2021 Metcash Group Financial Report FY21 1 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Directors’ Report Directors’ Report For the year ended 30 April 2021 Project Horizon implementation costs Metcash has embarked on a three-year Project Horizon stage one program aimed at derisking our processes by replacing aged technology whilst driving efficiencies and simplifying processes through the development of a single operating system across the Group. In FY21, the Group incurred $17.3 million of capital expenditure and $7.9 million of expenses on the program as detailed in note 3 of the financial report. MFuture program, including South Australia Distribution Centre (‘SADC’) The five-year MFuture program initiatives are focused on growth opportunities and maximising the effectiveness of the Group’s cost of doing business (‘CODB’). In December 2020, the Group successfully opened the new distribution centre in South Australia (‘SADC’) which will increase retailer competitiveness through a wider range and efficiencies. Capital management initiatives On 20 May 2020, Metcash announced the successful completion of its Share Purchase Plan (‘SPP’) which raised $13.5 million, net of transaction costs and that resulted in 5,963,215 new shares being issued at $2.28 per share. On 16 March 2021, Metcash announced an increase to the target dividend payout ratio from 60% to 70% of underlying profit after tax, effective FY21. Changes in key management personnel (KMP) Alistair Bell joined Metcash on 1 September 2020 and was appointed Group Chief Financial Officer (‘Group CFO’) from 7 December 2020 following Brad Soller’s retirement from the role. Christine Holman joined the Metcash Board as a Non-executive Director on 14 September 2020. Ms Holman joined the Audit Risk & Compliance and Nomination Committees from her appointment date. Margaret Haseltine joined the Metcash Board as a Non-executive Director on 3 May 2021. Tonianne Dwyer will retire from the Board following the completion of the FY21 financial report. Dividend declaration The Board has determined to pay a fully franked final FY21 dividend of 9.5 cents per share, which together with the interim dividend of 8.0 cents per share, represent a full year dividend payout ratio of ~71% of underlying profit after tax. 4. KEY FINANCIAL MEASURES Warehouse earnings Metcash’s operations are designed to allow significant volumes to be distributed through its warehouse infrastructure at a relatively fixed cost base. The ability to leverage volumes through the warehouse is a key driver of profitability for both Metcash and the independent retail network. In addition to warehouse revenue, earnings are impacted by product category mix and the proportion of the Group’s products bought by the network. Warehouse revenue and related margins are driven by competitive pricing, promotional activities and the level of supplier support through volumetric and other rebates. Metcash has a number of key programs in place to drive sales and margins, including through pricing and promotion, product range, retail operational standards and consumer alignment. Cost of doing business The Group’s profitability depends on the efficiency and effectiveness of its operating model. This is achieved by optimising the Group’s cost of doing business (‘CODB’) which comprises the various costs of operating the distribution centres and the administrative support functions. During FY21, the efficiency of the supply chain was impacted by COVID-19 Safe work practices implemented to align with local health regulations. The MFuture program includes initiatives aimed at both revenue growth and ensuring the Group has a sustainable cost base. Funds employed and return on capital The Group’s funds employed is primarily influenced by the seasonal working capital cycle. The Group has longer term capital investments predominantly in relation to its supply chain capabilities, including warehouse automation technologies and software development. In a number of instances, the Group invests alongside the independent retail network, mainly in the form of equity participation or short-term loans. Metcash Group Financial Report FY21 41 2 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Directors’ Report Directors’ Report For the year ended 30 April 2021 The Board’s intention is to continue to invest in the business for future growth while maintaining a strong financial position and otherwise to assess returning surplus capital to shareholders. Non-IFRS Information The directors report contains IFRS and non-IFRS financial information. IFRS financial information is financial information that is presented in accordance with all relevant accounting standards. Non-IFRS financial information is financial information that is not defined or specified under any relevant accounting standards and may not be directly comparable with other companies’ information. Non-IFRS measures are used by management to assess and monitor business performance at the Group and segment level and should be considered in addition to, and not as a substitute for, IFRS information. Non-IFRS information is not subject to audit or review. Impact of new IFRIC agenda decision on key financial measures In April 2021, IFRIC published an agenda decision in relation to the accounting treatment of configuration and customisation costs related to ‘Software as a Service’ (‘SaaS’) arrangements. The Group is currently assessing the impact the agenda decision will have on its current accounting policy and whether previously capitalised costs may need to be derecognised. Accordingly, the potential impact of the IFRIC agenda decision on the Group cannot be reliably estimated at the date of this report. The Group expects to complete the implementation of the above IFRIC agenda decision as part of its 31 October 2021 reporting. 5. REVIEW OF FINANCIAL RESULTS Group overview Sales revenue Food Liquor Hardware Corporate Underlying earnings before interest and tax (‘EBIT’) Net finance costs Underlying profit before tax Tax expense on underlying profit Non-controlling interests Underlying profit after tax (‘UPAT’) (a) Significant items Tax benefit attributable to significant items Net profit/(loss) for the year attributable to members Underlying earnings per share (cents) (b) Reported earnings/(loss) per share (cents) FY21 $m FY20 $m 14,315.3 13,025.4 192.4 88.7 136.0 (15.7) 401.4 (42.6) 358.8 (103.7) (2.4) 252.7 (17.0) 3.3 239.0 24.7 23.4 182.7 72.8 84.2 (4.8) 334.9 (52.0) 282.9 (82.5) (1.6) 198.8 (268.5) 12.9 (56.8) 21.8 (6.2) (a) UPAT is defined as reported profit after tax attributable to equity holders of the parent, excluding significant items identified in note 3(vii) of the financial report. (b) Underlying earnings per share (EPS) is calculated by dividing UPAT by the weighted average shares outstanding during the year. Group reported revenue, which excludes charge-through sales, increased 9.9% to $14.3 billion (FY20: $13.0 billion). Including charge- through sales, Group revenue increased 10.1% to a record $16.4 billion, with significant growth in sales volumes across all Pillars. Group underlying EBIT increased 19.9% to $401.4 million with strong volume growth and improved leverage in all Pillars. In Food, increased earnings were underpinned by higher sales volumes and an improvement in the contribution from joint venture stores. This improvement was despite FY21 not including sales to Drakes in South Australia1, and substantially less sales to 7-Eleven2 following the ending of their previous supply agreement in mid-August 2020. In Liquor, significant earnings growth was underpinned by strong demand in the retail network, partly offset by lower sales to ‘on- premise’ customers due to the impact of COVID-19 trading restrictions. In Hardware, exceptional earnings growth was driven by a significant increase in do-it-yourself (DIY) sales, a return to growth in Trade sales and the contribution from acquisitions3. 42 Metcash Annual Report 2021 Metcash Group Financial Report FY21 3 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Directors’ Report Directors’ Report For the year ended 30 April 2021 Group underlying profit after tax increased 27.1% to $252.7 million4 and statutory profit after tax was $239.0 million (FY20: a loss of $56.8 million5). Underlying earnings per share increased 13.3% to 24.7 cents reflecting an increase in profit after tax and the impact of the Company’s equity raising in FY20. Group operating cashflow was a record $475.5 million (FY20: $117.5 million), which reflects the higher earnings, a reduction in working capital and a cash realisation ratio of 114.2%6 (FY20: 33.0%). The Group ended the financial year with net cash of $124.6 million (FY20: $86.7 million). Segment results Food Liquor Hardware Corporate Metcash Group Food Segment revenue FY20 $m FY21 $m Segment underlying EBIT FY20 $m FY21 $m 8,316.3 4,374.3 1,624.7 - 14,315.3 8,121.6 3,670.3 1,233.5 - 13,025.4 192.4 88.7 136.0 (15.7) 401.4 182.7 72.8 84.2 (4.8) 334.9 Total Food sales (including charge-through) increased 3.1% to $9.4 billion (FY20: $9.1 billion) or 11.0% excluding the impact of Drakes1 and 7-Eleven2. In Supermarkets, total sales (including charge-through) increased 10.0% to $8.3 billion (FY20: $7.5 billion) and 11.6% excluding the impact of Drakes1. This included a 16.7% increase for the ten months to February 2021, and an 8.0% decrease in March/April 2021 sales (ex-Drakes impact), compared with the same period in FY20 which included peak demand from the impact of COVID-19 related trading restrictions. Compared with the same period in FY19, Supermarkets sales increased 15.6% in March/April 2021 (ex-Drakes impact). Strong sales growth was delivered in all states, particularly Victoria where demand was impacted by extended COVID-19 related lockdowns. The IGA retail network continued to benefit from a shift in consumer behaviour, including an increased preference for local neighbourhood shopping, migration from cities to regional areas, more flexible working and cooking at home, and the success of MFuture initiatives to retain new and returning customers gained through COVID-19. The IGA retail network performed strongly with ‘like for like’ (LfL)7 sales increasing 10.5% compared with the prior comparative year, and 18.8% compared with FY19. Food EBIT increased $9.7 million (+5.3%) to $192.4 million (FY20: $182.7 million) reflecting strong growth in sales volumes and an increase in the contribution from joint venture stores. The improvement in EBIT was ~$20 million after adjusting for the impact of Drakes in South Australia and 7-Eleven, a decline in the contribution from resolution of onerous lease obligations and the increased contribution from joint venture stores. The EBIT margin8 for Food was in line with the prior corresponding year at 2.0%, despite 2H21 including an increased weighting of lower-margin charge-through and tobacco sales in the sales mix. Liquor Total Liquor sales (including charge-through) increased 19.2% to $4.4 billion (FY20: $3.7 billion) reflecting continued strong demand in the retail network, partly offset by the adverse impact of COVID-19 trading restrictions on ‘on-premise’ customers. Wholesale sales to the IBA retail banner group increased 22.6% with strong growth in Cellarbrations, the Bottle-O, IGA Liquor, Duncans, Thirsty Camel, Liquor@, Big Bargain and Porters. The strong sales growth was buoyed by an increase in customer preference for local neighbourhood shopping, home consumption substituting ‘on-premise’ consumption and less overseas travel and duty-free sales. Retail LfL sales9 in the IBA retail banner group increased 19.7% (FY20: +3.2%), with strong growth continuing in 2H21 despite a recovery in ‘on-premise’ sales. Liquor EBIT increased $15.9 million (+21.8%) to $88.7 million reflecting the increase in sales volumes and the effective management of costs. The EBIT margin for Liquor was in line with the prior corresponding year at 2.0% despite an increase in the weighting of lower- margin categories in the sales mix. Metcash Group Financial Report FY21 43 4 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Directors’ Report Directors’ Report For the year ended 30 April 2021 Hardware Hardware sales (including charge-through) increased 24.7% to $2.6 billion (FY20: $2.1 billion) with significant growth in DIY sales and a return to growth in Trade. Total IHG sales (excluding Total Tools) increased 17.9% (FY20: -1.3%). This includes a 19.4% increase for the ten months ended February 2021 and a 12.3% increase in March/April 2021 sales. Compared with FY19, March/April sales increased 25.4%. Retail LfL sales10 in the IHG banner group increased 11.4% (FY20: -0.7%), with DIY sales up 25.1% and Trade sales 4.9% higher. The significant growth in DIY sales was underpinned by a shift in consumer behaviour to more home improvement projects, gardening and maintenance activity, and the success of MFuture initiatives to further improve the competitiveness of the IHG retail network. Trade sales strengthened in 2H21 supported by Government stimulus to drive increased renovations activity. The growth in higher margin DIY sales has resulted in a change in the sales mix to ~40% DIY and ~60% Trade (FY20: ~37% DIY, ~63% Trade). Online sales increased 122%, with Hardware’s advanced digital capability helping optimise strong online demand. The Home Timber & Hardware teamwork score continued to increase finishing the year at ~72% (FY20: ~68%). Hardware EBIT increased $51.8 million (+61.5%) to $136.0 million, reflecting a significant increase in sales volumes, an increase in the contribution from company-owned / joint venture stores, and the earnings from acquisitions3 which included $24.0 million from the Total Tools Group. The EBIT margin for Hardware increased 130 basis points to 5.3% which includes the positive impact of Total Tools and the retail margin from joint venture and company-owned stores. Finance costs and tax Net finance costs decreased during the year reflecting lower debt utilisation driven by strong operating cash generation and lower interest rates. Tax expense of $103.7 million on underlying profit represents an effective tax rate of 28.9% (FY20: 29.2%). Significant items Significant items included Project Horizon implementation costs of $7.9 million and costs related to the MFuture program of $3.5 million. Significant items also included costs incurred in relation to the acquisition of Total Tools and finance costs from discounting the Total Tools put option liabilities totalling $6.1 million and a reversal of the previously recognised COVID-19 allowance for impairment loss of $0.5 million. The FY20 significant items included an impairment expense of $242.4 million recorded against the carrying value of goodwill and other assets in the Food segment following the loss of the 7-Eleven contract. Significant items also included an allowance for impairment losses on receivables from customers and prepaid costs impacted by COVID-19 restrictions of $15.6 million and costs related to the SADC and the MFuture program of $10.5 million. Refer note 3 of the financial report for further information. 44 Metcash Annual Report 2021 Metcash Group Financial Report FY21 5 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Directors’ Report Directors’ Report For the year ended 30 April 2021 Cash flows Operating cash flows Investing cash flows, net Proceeds from equity raising, net of share issue costs Dividends paid Payments for lease liabilities, net and other financing activities Increase in net cash FY21 $m 475.5 (216.0) 13.5 (148.3) (86.8) 37.9 FY20 $m 117.5 (81.6) 294.3 (118.2) (89.8) 122.2 Group operating cash flows were significantly higher than in the prior corresponding period at $475.5 million (FY20: $117.5 million), underpinned by strong sales and working capital management. The cash realisation ratio for the year was 114.2%, reflecting strong operating cash flows and a reduction in working capital. The Group had net investing outflows of $216.0 million, including capital expenditure of $85.6 million and acquisitions of businesses of $143.1 million. The acquisitions were predominantly in the Hardware pillar and included a majority stake in Total Tools. The Group paid $148.3 million (FY20: $118.2 million) in dividends during the current financial year. Total dividends paid in FY21 was 14.5 cents per share (FY20: 13.0 cents per share). Financial position Trade receivables Inventories Trade payables and provisions Net working capital Intangible assets Property, plant and equipment Equity-accounted investments Customer loans and assets held for sale Total funds employed Lease balances (net) Put option liabilities Tax and derivatives Net cash Net assets/equity FY21 $m 1,607.8 1,008.0 (2,234.4) 381.4 729.1 231.8 82.5 41.3 1,466.1 (179.9) (212.5) 92.8 124.6 1,291.1 FY20 $m 1,559.0 1,032.2 (2,181.9) 409.3 581.8 214.0 77.6 56.3 1,339.0 (166.1) (6.1) 118.1 86.7 1,371.6 Net working capital decreased by $27.9 million to $381.4 million, notwithstanding growth from acquisitions, reflecting working capital management. Capital expenditure of $85.6 million during the year included $17.3 million incurred in relation to Project Horizon. Put option liabilities of $212.5 million have been recognised, predominantly in relation to the Total Tools Group (refer note 13 of the financial report). The Group was in a net cash position at 30 April 2021 of $124.6 million (FY20: Net cash of $86.7m). Metcash had $894.3 million in unused debt facilities and $124.6 million of cash and cash equivalents available at the reporting date for immediate use. COVID-19 uncertainty The Group has incorporated judgements, estimates and assumptions specific to the impact of the COVID-19 pandemic in determining the amounts recognised in the financial statements based on conditions existing at reporting date, recognising uncertainty still exists in relation to the duration of the COVID-19 pandemic-related restrictions, the anticipated government stimulus and regulatory actions. Metcash Group Financial Report FY21 45 6 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Directors’ Report Directors’ Report For the year ended 30 April 2021 Commitments, contingencies and other financial exposures Put options, including in relation to Ritchies Stores Pty Ltd, are detailed along with other contingent liabilities in note 16 of the financial statements. Metcash has a relatively low exposure to interest rate risk and minimal foreign exchange exposures. Variable interest rate exposures on core debt are hedged within a range, in accordance with treasury policy. At year end, the Group did not have any interest-bearing debt. Further details are set out in note 16 of the financial statements. Strategic risks Strategic risks Strategic risks Strategic risks Strategic risks Strategic risks 6. OUTLOOK The Group has continued to benefit from the shift in consumer behaviour with strong sales in the first eight weeks of FY22. In Food, sales in the first eight weeks of FY22 increased 13.7% compared with the same period in FY20, and decreased 1.4% compared with the same period in FY21 (ex-Drakes1 and 7-Eleven2 impact). This reflects the success of MFuture in improving the competitiveness of our IGA retail network and retaining new and returning customers gained through COVID-19. Including the impact of Drakes1 and 7- Eleven2, total Food sales increased 1.1% compared with the same period in FY20, and decreased 8.2% compared with the same period in FY21. Supermarkets sales for the first eight weeks of FY22 increased 10.1% (+14.2% ex-Drakes1 impact) compared with the same period in FY20, and were 2.4% lower than the same period in FY21. The Food pillar is focused on the successful execution of the next phase of MFuture aimed at further improving the competitiveness of our IGA retail network to support the continued retention and growth of its shopper base. As previously announced, Food earnings in FY22 will include an estimated net adverse impact of ~$10.0 million from the loss of stock profits11 due to there being no tobacco excise increase in September 2021. This is expected to be largely reflected in 1H22. In Liquor, very strong sales have continued in the first eight weeks of FY22, increasing 26.0% compared with the same period in FY20, and 17.3% compared with the same period in FY21. The significant uplift reflects continued strong demand across retail stores and an improvement in sales to ‘on-premise’ customers. Sales to the IBA retail banner group in the first eight weeks of FY22 increased 23.1% compared with the same period in FY20, and 2.8% compared with the same period in FY21. The Liquor pillar is focused on progressing its MFuture growth initiatives in private and exclusive label, digital transformation, supply chain flexibility and efficiency, and driving brand awareness and appeal. In Hardware, sales for the first eight weeks of FY22 increased 29.1% compared with the same period in FY20, and 15.5% compared with the same period in FY21. Total IHG sales12 for the first eight weeks of FY22 are up 15.1% compared with the same period in FY20, and 3.1% compared with the same period in FY21. There continues to be a solid pipeline of residential construction activity despite the Government stimulus program aimed at boosting renovation activity ceasing in March this year. Strong demand is continuing to place some pressure on stock availability, particularly timber. The Hardware pillar is continuing to progress MFuture growth initiatives aimed at growing Trade and DIY while also continuing to focus on being a low-cost leading hardware and professional tools wholesaler with retail experience. The Hardware pillar earnings in FY22 will include a full year of trading in Total Tools Group. While the Group has managed well through the significant challenges associated with COVID-19 in FY20 and FY21, there continues to be some uncertainty over the potential impact of any future COVID-19 related trading restrictions or changes in consumer behaviour. FY22 will include a 53rd trading week. Directors’ Report Directors’ Report Directors’ Report Directors’ Report Directors’ Report Directors’ Report For the year ended 30 April 2021 For the year ended 30 April 2021 For the year ended 30 April 2021 For the year ended 30 April 2021 For the year ended 30 April 2021 For the year ended 30 April 2021 7. 7. 7. 7. 7. 7. MATERIAL BUSINESS RISKS MATERIAL BUSINESS RISKS MATERIAL BUSINESS RISKS MATERIAL BUSINESS RISKS MATERIAL BUSINESS RISKS MATERIAL BUSINESS RISKS The following section outlines the material business risks that may impact on the Group achieving its strategic objectives and business The following section outlines the material business risks that may impact on the Group achieving its strategic objectives and business The following section outlines the material business risks that may impact on the Group achieving its strategic objectives and business The following section outlines the material business risks that may impact on the Group achieving its strategic objectives and business The following section outlines the material business risks that may impact on the Group achieving its strategic objectives and business operations, including the mitigating factors put in place to address those risks. The material risks are not set out in any particular The following section outlines the material business risks that may impact on the Group achieving its strategic objectives and business operations, including the mitigating factors put in place to address those risks. The material risks are not set out in any particular operations, including the mitigating factors put in place to address those risks. The material risks are not set out in any particular operations, including the mitigating factors put in place to address those risks. The material risks are not set out in any particular order and exclude general risks that could have a material effect on most businesses in Australia under normal operating conditions. operations, including the mitigating factors put in place to address those risks. The material risks are not set out in any particular order and exclude general risks that could have a material effect on most businesses in Australia under normal operating conditions. operations, including the mitigating factors put in place to address those risks. The material risks are not set out in any particular order and exclude general risks that could have a material effect on most businesses in Australia under normal operating conditions. order and exclude general risks that could have a material effect on most businesses in Australia under normal operating conditions. order and exclude general risks that could have a material effect on most businesses in Australia under normal operating conditions. order and exclude general risks that could have a material effect on most businesses in Australia under normal operating conditions. Consumer behaviour and preferences continue to change and are influenced by factors such as economic conditions, digital and Consumer behaviour and preferences continue to change and are influenced by factors such as economic conditions, digital and Consumer behaviour and preferences continue to change and are influenced by factors such as economic conditions, digital and Consumer behaviour and preferences continue to change and are influenced by factors such as economic conditions, digital and Consumer behaviour and preferences continue to change and are influenced by factors such as economic conditions, digital and technological development and disruption, healthy living trends and increasing choices in both online and in-store retail options. Consumer behaviour and preferences continue to change and are influenced by factors such as economic conditions, digital and technological development and disruption, healthy living trends and increasing choices in both online and in-store retail options. technological development and disruption, healthy living trends and increasing choices in both online and in-store retail options. technological development and disruption, healthy living trends and increasing choices in both online and in-store retail options. These changes may impact Metcash’s sales mix and earnings. Metcash’s strategy puts customers and consumers first, with ongoing technological development and disruption, healthy living trends and increasing choices in both online and in-store retail options. These changes may impact Metcash’s sales mix and earnings. Metcash’s strategy puts customers and consumers first, with ongoing technological development and disruption, healthy living trends and increasing choices in both online and in-store retail options. These changes may impact Metcash’s sales mix and earnings. Metcash’s strategy puts customers and consumers first, with ongoing These changes may impact Metcash’s sales mix and earnings. Metcash’s strategy puts customers and consumers first, with ongoing focus on our shopper-led range, e-commerce and loyalty, store quality and overall perception of value at checkout. These changes may impact Metcash’s sales mix and earnings. Metcash’s strategy puts customers and consumers first, with ongoing focus on our shopper-led range, e-commerce and loyalty, store quality and overall perception of value at checkout. These changes may impact Metcash’s sales mix and earnings. Metcash’s strategy puts customers and consumers first, with ongoing focus on our shopper-led range, e-commerce and loyalty, store quality and overall perception of value at checkout. focus on our shopper-led range, e-commerce and loyalty, store quality and overall perception of value at checkout. focus on our shopper-led range, e-commerce and loyalty, store quality and overall perception of value at checkout. focus on our shopper-led range, e-commerce and loyalty, store quality and overall perception of value at checkout. Metcash is planning to accelerate its investment in digital, expanding our capability and improving our delivery of digital solutions to Metcash is planning to accelerate its investment in digital, expanding our capability and improving our delivery of digital solutions to Metcash is planning to accelerate its investment in digital, expanding our capability and improving our delivery of digital solutions to Metcash is planning to accelerate its investment in digital, expanding our capability and improving our delivery of digital solutions to our retailers and shoppers. This will be achieved through investment in the ‘Metcash Digital Accelerator’, which is built on three key Metcash is planning to accelerate its investment in digital, expanding our capability and improving our delivery of digital solutions to our retailers and shoppers. This will be achieved through investment in the ‘Metcash Digital Accelerator’, which is built on three key Metcash is planning to accelerate its investment in digital, expanding our capability and improving our delivery of digital solutions to our retailers and shoppers. This will be achieved through investment in the ‘Metcash Digital Accelerator’, which is built on three key our retailers and shoppers. This will be achieved through investment in the ‘Metcash Digital Accelerator’, which is built on three key principles: driving digital sales, investing in digital capability over time, and using funding more efficiently. our retailers and shoppers. This will be achieved through investment in the ‘Metcash Digital Accelerator’, which is built on three key principles: driving digital sales, investing in digital capability over time, and using funding more efficiently. our retailers and shoppers. This will be achieved through investment in the ‘Metcash Digital Accelerator’, which is built on three key principles: driving digital sales, investing in digital capability over time, and using funding more efficiently. principles: driving digital sales, investing in digital capability over time, and using funding more efficiently. principles: driving digital sales, investing in digital capability over time, and using funding more efficiently. principles: driving digital sales, investing in digital capability over time, and using funding more efficiently. In executing its strategy, there is a risk that Metcash may experience project execution issues or may not realise the full benefits of In executing its strategy, there is a risk that Metcash may experience project execution issues or may not realise the full benefits of In executing its strategy, there is a risk that Metcash may experience project execution issues or may not realise the full benefits of In executing its strategy, there is a risk that Metcash may experience project execution issues or may not realise the full benefits of In executing its strategy, there is a risk that Metcash may experience project execution issues or may not realise the full benefits of projects that underpin its strategic plan. There is also a risk that projects may experience scope, time or cost variability or overruns. In executing its strategy, there is a risk that Metcash may experience project execution issues or may not realise the full benefits of projects that underpin its strategic plan. There is also a risk that projects may experience scope, time or cost variability or overruns. projects that underpin its strategic plan. There is also a risk that projects may experience scope, time or cost variability or overruns. projects that underpin its strategic plan. There is also a risk that projects may experience scope, time or cost variability or overruns. projects that underpin its strategic plan. There is also a risk that projects may experience scope, time or cost variability or overruns. projects that underpin its strategic plan. There is also a risk that projects may experience scope, time or cost variability or overruns. Metcash’s business operations and strategic priorities are subject to ongoing review and development. Management regularly reviews Metcash’s business operations and strategic priorities are subject to ongoing review and development. Management regularly reviews Metcash’s business operations and strategic priorities are subject to ongoing review and development. Management regularly reviews Metcash’s business operations and strategic priorities are subject to ongoing review and development. Management regularly reviews Metcash’s business operations and strategic priorities are subject to ongoing review and development. Management regularly reviews Metcash’s business operations and strategic priorities are subject to ongoing review and development. Management regularly reviews plans against market changes and, where necessary, modifies its approach. plans against market changes and, where necessary, modifies its approach. plans against market changes and, where necessary, modifies its approach. plans against market changes and, where necessary, modifies its approach. plans against market changes and, where necessary, modifies its approach. plans against market changes and, where necessary, modifies its approach. COVID-19 risks COVID-19 risks COVID-19 risks COVID-19 risks COVID-19 risks COVID-19 risks At the start of the COVID-19 pandemic there was a high degree of uncertainty as to the potential impact it may have on the broader At the start of the COVID-19 pandemic there was a high degree of uncertainty as to the potential impact it may have on the broader At the start of the COVID-19 pandemic there was a high degree of uncertainty as to the potential impact it may have on the broader At the start of the COVID-19 pandemic there was a high degree of uncertainty as to the potential impact it may have on the broader economy and on Metcash’s operations. As the pandemic progressed it was evident that Metcash’s Food business provides a critical At the start of the COVID-19 pandemic there was a high degree of uncertainty as to the potential impact it may have on the broader economy and on Metcash’s operations. As the pandemic progressed it was evident that Metcash’s Food business provides a critical At the start of the COVID-19 pandemic there was a high degree of uncertainty as to the potential impact it may have on the broader economy and on Metcash’s operations. As the pandemic progressed it was evident that Metcash’s Food business provides a critical economy and on Metcash’s operations. As the pandemic progressed it was evident that Metcash’s Food business provides a critical service to local communities across Australia, ensuring the continued supply of food and grocery products for people staying closer economy and on Metcash’s operations. As the pandemic progressed it was evident that Metcash’s Food business provides a critical service to local communities across Australia, ensuring the continued supply of food and grocery products for people staying closer economy and on Metcash’s operations. As the pandemic progressed it was evident that Metcash’s Food business provides a critical service to local communities across Australia, ensuring the continued supply of food and grocery products for people staying closer service to local communities across Australia, ensuring the continued supply of food and grocery products for people staying closer service to local communities across Australia, ensuring the continued supply of food and grocery products for people staying closer to their homes. All of Metcash’s pillars have performed strongly during the pandemic, with some minor operational complexities service to local communities across Australia, ensuring the continued supply of food and grocery products for people staying closer to their homes. All of Metcash’s pillars have performed strongly during the pandemic, with some minor operational complexities to their homes. All of Metcash’s pillars have performed strongly during the pandemic, with some minor operational complexities to their homes. All of Metcash’s pillars have performed strongly during the pandemic, with some minor operational complexities caused by supply chain disruption, quarantines, lockdowns, travel restrictions, and actions of health authorities. to their homes. All of Metcash’s pillars have performed strongly during the pandemic, with some minor operational complexities caused by supply chain disruption, quarantines, lockdowns, travel restrictions, and actions of health authorities. to their homes. All of Metcash’s pillars have performed strongly during the pandemic, with some minor operational complexities caused by supply chain disruption, quarantines, lockdowns, travel restrictions, and actions of health authorities. caused by supply chain disruption, quarantines, lockdowns, travel restrictions, and actions of health authorities. caused by supply chain disruption, quarantines, lockdowns, travel restrictions, and actions of health authorities. caused by supply chain disruption, quarantines, lockdowns, travel restrictions, and actions of health authorities. The Group’s operations may be directly and indirectly impacted by any prolonged or ongoing period of COVID-19 and the resulting The Group’s operations may be directly and indirectly impacted by any prolonged or ongoing period of COVID-19 and the resulting The Group’s operations may be directly and indirectly impacted by any prolonged or ongoing period of COVID-19 and the resulting The Group’s operations may be directly and indirectly impacted by any prolonged or ongoing period of COVID-19 and the resulting economic uncertainty that may arise. In particular, continued restrictions such as social distancing, quarantines, travel restrictions, The Group’s operations may be directly and indirectly impacted by any prolonged or ongoing period of COVID-19 and the resulting economic uncertainty that may arise. In particular, continued restrictions such as social distancing, quarantines, travel restrictions, The Group’s operations may be directly and indirectly impacted by any prolonged or ongoing period of COVID-19 and the resulting economic uncertainty that may arise. In particular, continued restrictions such as social distancing, quarantines, travel restrictions, economic uncertainty that may arise. In particular, continued restrictions such as social distancing, quarantines, travel restrictions, economic uncertainty that may arise. In particular, continued restrictions such as social distancing, quarantines, travel restrictions, work stoppages, health authority actions, lockdowns and other related measures may impact our operational and financial economic uncertainty that may arise. In particular, continued restrictions such as social distancing, quarantines, travel restrictions, work stoppages, health authority actions, lockdowns and other related measures may impact our operational and financial work stoppages, health authority actions, lockdowns and other related measures may impact our operational and financial work stoppages, health authority actions, lockdowns and other related measures may impact our operational and financial performance. Further, the discontinuation of COVID-19 government assistance measures supporting the economy may also impact work stoppages, health authority actions, lockdowns and other related measures may impact our operational and financial performance. Further, the discontinuation of COVID-19 government assistance measures supporting the economy may also impact work stoppages, health authority actions, lockdowns and other related measures may impact our operational and financial performance. Further, the discontinuation of COVID-19 government assistance measures supporting the economy may also impact performance. Further, the discontinuation of COVID-19 government assistance measures supporting the economy may also impact performance. Further, the discontinuation of COVID-19 government assistance measures supporting the economy may also impact performance. Further, the discontinuation of COVID-19 government assistance measures supporting the economy may also impact the Group’s operations. the Group’s operations. the Group’s operations. the Group’s operations. the Group’s operations. the Group’s operations. Competition risks Competition risks Competition risks Competition risks Competition risks Competition risks Any increase in competitive activity from new or existing competitors (including in the form of a new market entrant with a wholesaler Any increase in competitive activity from new or existing competitors (including in the form of a new market entrant with a wholesaler Any increase in competitive activity from new or existing competitors (including in the form of a new market entrant with a wholesaler Any increase in competitive activity from new or existing competitors (including in the form of a new market entrant with a wholesaler model, where suppliers sell directly to the Group’s customers, where customers form their own buying groups to collectively negotiate Any increase in competitive activity from new or existing competitors (including in the form of a new market entrant with a wholesaler model, where suppliers sell directly to the Group’s customers, where customers form their own buying groups to collectively negotiate Any increase in competitive activity from new or existing competitors (including in the form of a new market entrant with a wholesaler model, where suppliers sell directly to the Group’s customers, where customers form their own buying groups to collectively negotiate model, where suppliers sell directly to the Group’s customers, where customers form their own buying groups to collectively negotiate and purchase directly from suppliers or where indirect competitors change their business models to compete directly with the Group) model, where suppliers sell directly to the Group’s customers, where customers form their own buying groups to collectively negotiate and purchase directly from suppliers or where indirect competitors change their business models to compete directly with the Group) model, where suppliers sell directly to the Group’s customers, where customers form their own buying groups to collectively negotiate and purchase directly from suppliers or where indirect competitors change their business models to compete directly with the Group) and purchase directly from suppliers or where indirect competitors change their business models to compete directly with the Group) and purchase directly from suppliers or where indirect competitors change their business models to compete directly with the Group) may have a detrimental effect on the Group’s operations, particularly if Metcash fails to respond effectively to that competitive activity and purchase directly from suppliers or where indirect competitors change their business models to compete directly with the Group) may have a detrimental effect on the Group’s operations, particularly if Metcash fails to respond effectively to that competitive activity may have a detrimental effect on the Group’s operations, particularly if Metcash fails to respond effectively to that competitive activity may have a detrimental effect on the Group’s operations, particularly if Metcash fails to respond effectively to that competitive activity or its response is delayed (for example, as a result of the time required to engage with the Group’s independent retail network in order may have a detrimental effect on the Group’s operations, particularly if Metcash fails to respond effectively to that competitive activity or its response is delayed (for example, as a result of the time required to engage with the Group’s independent retail network in order may have a detrimental effect on the Group’s operations, particularly if Metcash fails to respond effectively to that competitive activity or its response is delayed (for example, as a result of the time required to engage with the Group’s independent retail network in order or its response is delayed (for example, as a result of the time required to engage with the Group’s independent retail network in order to implement an initiative). Increased competition may also adversely impact Metcash’s long-term performance and profitability. or its response is delayed (for example, as a result of the time required to engage with the Group’s independent retail network in order to implement an initiative). Increased competition may also adversely impact Metcash’s long-term performance and profitability. or its response is delayed (for example, as a result of the time required to engage with the Group’s independent retail network in order to implement an initiative). Increased competition may also adversely impact Metcash’s long-term performance and profitability. to implement an initiative). Increased competition may also adversely impact Metcash’s long-term performance and profitability. to implement an initiative). Increased competition may also adversely impact Metcash’s long-term performance and profitability. to implement an initiative). Increased competition may also adversely impact Metcash’s long-term performance and profitability. Key brands risk Key brands risk Key brands risk Key brands risk Key brands risk Key brands risk Metcash’s success in generating profits and increasing its market share is based on the success of the key brands it owns or licences. Metcash’s success in generating profits and increasing its market share is based on the success of the key brands it owns or licences. Metcash’s success in generating profits and increasing its market share is based on the success of the key brands it owns or licences. Metcash’s success in generating profits and increasing its market share is based on the success of the key brands it owns or licences. Reliance on key brands makes Metcash vulnerable to brand damage from negative publicity, product tampering or recalls, Metcash’s success in generating profits and increasing its market share is based on the success of the key brands it owns or licences. Reliance on key brands makes Metcash vulnerable to brand damage from negative publicity, product tampering or recalls, Metcash’s success in generating profits and increasing its market share is based on the success of the key brands it owns or licences. Reliance on key brands makes Metcash vulnerable to brand damage from negative publicity, product tampering or recalls, Reliance on key brands makes Metcash vulnerable to brand damage from negative publicity, product tampering or recalls, unauthorised use of its brands or ineffective brand management by Metcash or its licensees, increasing the risk of asset write downs. Reliance on key brands makes Metcash vulnerable to brand damage from negative publicity, product tampering or recalls, unauthorised use of its brands or ineffective brand management by Metcash or its licensees, increasing the risk of asset write downs. Reliance on key brands makes Metcash vulnerable to brand damage from negative publicity, product tampering or recalls, unauthorised use of its brands or ineffective brand management by Metcash or its licensees, increasing the risk of asset write downs. unauthorised use of its brands or ineffective brand management by Metcash or its licensees, increasing the risk of asset write downs. unauthorised use of its brands or ineffective brand management by Metcash or its licensees, increasing the risk of asset write downs. unauthorised use of its brands or ineffective brand management by Metcash or its licensees, increasing the risk of asset write downs. Operational and compliance risks Operational and compliance risks Operational and compliance risks Operational and compliance risks Operational and compliance risks Operational and compliance risks As Australia’s leading wholesaler, Metcash is reliant upon the success of its suppliers and retailers. Metcash continues to invest in As Australia’s leading wholesaler, Metcash is reliant upon the success of its suppliers and retailers. Metcash continues to invest in As Australia’s leading wholesaler, Metcash is reliant upon the success of its suppliers and retailers. Metcash continues to invest in As Australia’s leading wholesaler, Metcash is reliant upon the success of its suppliers and retailers. Metcash continues to invest in programs to improve the health of the independent retail network and improving Metcash’s infrastructure to make it simpler to do As Australia’s leading wholesaler, Metcash is reliant upon the success of its suppliers and retailers. Metcash continues to invest in programs to improve the health of the independent retail network and improving Metcash’s infrastructure to make it simpler to do As Australia’s leading wholesaler, Metcash is reliant upon the success of its suppliers and retailers. Metcash continues to invest in programs to improve the health of the independent retail network and improving Metcash’s infrastructure to make it simpler to do programs to improve the health of the independent retail network and improving Metcash’s infrastructure to make it simpler to do business. These programs aim to strengthen Metcash as the business partner of choice for both its suppliers and retailers. As with any programs to improve the health of the independent retail network and improving Metcash’s infrastructure to make it simpler to do business. These programs aim to strengthen Metcash as the business partner of choice for both its suppliers and retailers. As with any programs to improve the health of the independent retail network and improving Metcash’s infrastructure to make it simpler to do business. These programs aim to strengthen Metcash as the business partner of choice for both its suppliers and retailers. As with any business. These programs aim to strengthen Metcash as the business partner of choice for both its suppliers and retailers. As with any business. These programs aim to strengthen Metcash as the business partner of choice for both its suppliers and retailers. As with any significant change, there is a risk that these transformation programs fail to deliver the expected benefits. Metcash has strengthened business. These programs aim to strengthen Metcash as the business partner of choice for both its suppliers and retailers. As with any significant change, there is a risk that these transformation programs fail to deliver the expected benefits. Metcash has strengthened significant change, there is a risk that these transformation programs fail to deliver the expected benefits. Metcash has strengthened significant change, there is a risk that these transformation programs fail to deliver the expected benefits. Metcash has strengthened its governance frameworks to manage these change programs through the establishment of dedicated project teams to ensure significant change, there is a risk that these transformation programs fail to deliver the expected benefits. Metcash has strengthened its governance frameworks to manage these change programs through the establishment of dedicated project teams to ensure significant change, there is a risk that these transformation programs fail to deliver the expected benefits. Metcash has strengthened its governance frameworks to manage these change programs through the establishment of dedicated project teams to ensure its governance frameworks to manage these change programs through the establishment of dedicated project teams to ensure its governance frameworks to manage these change programs through the establishment of dedicated project teams to ensure its governance frameworks to manage these change programs through the establishment of dedicated project teams to ensure projects are delivered and risks are addressed in a timely manner. projects are delivered and risks are addressed in a timely manner. projects are delivered and risks are addressed in a timely manner. projects are delivered and risks are addressed in a timely manner. projects are delivered and risks are addressed in a timely manner. projects are delivered and risks are addressed in a timely manner. Metcash’s operations require compliance with various regulatory requirements including work health & safety, food safety, Metcash’s operations require compliance with various regulatory requirements including work health & safety, food safety, Metcash’s operations require compliance with various regulatory requirements including work health & safety, food safety, Metcash’s operations require compliance with various regulatory requirements including work health & safety, food safety, Metcash’s operations require compliance with various regulatory requirements including work health & safety, food safety, environmental regulations, workplace industrial relations, public liability, privacy & security, financial and legal. Any regulatory Metcash’s operations require compliance with various regulatory requirements including work health & safety, food safety, environmental regulations, workplace industrial relations, public liability, privacy & security, financial and legal. Any regulatory environmental regulations, workplace industrial relations, public liability, privacy & security, financial and legal. Any regulatory environmental regulations, workplace industrial relations, public liability, privacy & security, financial and legal. Any regulatory breach could have a material negative impact on the wellbeing, reputation or financial results of Metcash or its stakeholders. The environmental regulations, workplace industrial relations, public liability, privacy & security, financial and legal. Any regulatory breach could have a material negative impact on the wellbeing, reputation or financial results of Metcash or its stakeholders. The environmental regulations, workplace industrial relations, public liability, privacy & security, financial and legal. Any regulatory breach could have a material negative impact on the wellbeing, reputation or financial results of Metcash or its stakeholders. The breach could have a material negative impact on the wellbeing, reputation or financial results of Metcash or its stakeholders. The Group’s internal processes are regularly assessed and tested as part of risk and assurance programs addressing areas including; safety, breach could have a material negative impact on the wellbeing, reputation or financial results of Metcash or its stakeholders. The Group’s internal processes are regularly assessed and tested as part of risk and assurance programs addressing areas including; safety, breach could have a material negative impact on the wellbeing, reputation or financial results of Metcash or its stakeholders. The Group’s internal processes are regularly assessed and tested as part of risk and assurance programs addressing areas including; safety, Group’s internal processes are regularly assessed and tested as part of risk and assurance programs addressing areas including; safety, Group’s internal processes are regularly assessed and tested as part of risk and assurance programs addressing areas including; safety, security, sustainability, chain of responsibility, quality and food safety. Metcash maintains a strong ‘safety-first’ culture and has Group’s internal processes are regularly assessed and tested as part of risk and assurance programs addressing areas including; safety, security, sustainability, chain of responsibility, quality and food safety. Metcash maintains a strong ‘safety-first’ culture and has security, sustainability, chain of responsibility, quality and food safety. Metcash maintains a strong ‘safety-first’ culture and has security, sustainability, chain of responsibility, quality and food safety. Metcash maintains a strong ‘safety-first’ culture and has security, sustainability, chain of responsibility, quality and food safety. Metcash maintains a strong ‘safety-first’ culture and has security, sustainability, chain of responsibility, quality and food safety. Metcash maintains a strong ‘safety-first’ culture and has established standards and ‘Chain of Responsibility’ policies to identify and manage risk. established standards and ‘Chain of Responsibility’ policies to identify and manage risk. established standards and ‘Chain of Responsibility’ policies to identify and manage risk. established standards and ‘Chain of Responsibility’ policies to identify and manage risk. established standards and ‘Chain of Responsibility’ policies to identify and manage risk. established standards and ‘Chain of Responsibility’ policies to identify and manage risk. 46 Metcash Annual Report 2021 Metcash Group Financial Report FY21 7 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 8 8 8 8 8 8 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us For the year ended 30 April 2021 For the year ended 30 April 2021 For the year ended 30 April 2021 For the year ended 30 April 2021 For the year ended 30 April 2021 For the year ended 30 April 2021 MATERIAL BUSINESS RISKS MATERIAL BUSINESS RISKS MATERIAL BUSINESS RISKS MATERIAL BUSINESS RISKS MATERIAL BUSINESS RISKS MATERIAL BUSINESS RISKS Directors’ Report Directors’ Report Directors’ Report Directors’ Report Directors’ Report Directors’ Report Directors’ Report 7. 7. 7. 7. 7. 7. The following section outlines the material business risks that may impact on the Group achieving its strategic objectives and business The following section outlines the material business risks that may impact on the Group achieving its strategic objectives and business The following section outlines the material business risks that may impact on the Group achieving its strategic objectives and business The following section outlines the material business risks that may impact on the Group achieving its strategic objectives and business The following section outlines the material business risks that may impact on the Group achieving its strategic objectives and business operations, including the mitigating factors put in place to address those risks. The material risks are not set out in any particular The following section outlines the material business risks that may impact on the Group achieving its strategic objectives and business operations, including the mitigating factors put in place to address those risks. The material risks are not set out in any particular operations, including the mitigating factors put in place to address those risks. The material risks are not set out in any particular operations, including the mitigating factors put in place to address those risks. The material risks are not set out in any particular order and exclude general risks that could have a material effect on most businesses in Australia under normal operating conditions. operations, including the mitigating factors put in place to address those risks. The material risks are not set out in any particular order and exclude general risks that could have a material effect on most businesses in Australia under normal operating conditions. operations, including the mitigating factors put in place to address those risks. The material risks are not set out in any particular order and exclude general risks that could have a material effect on most businesses in Australia under normal operating conditions. order and exclude general risks that could have a material effect on most businesses in Australia under normal operating conditions. order and exclude general risks that could have a material effect on most businesses in Australia under normal operating conditions. order and exclude general risks that could have a material effect on most businesses in Australia under normal operating conditions. Strategic risks Strategic risks Strategic risks Strategic risks Strategic risks Strategic risks Consumer behaviour and preferences continue to change and are influenced by factors such as economic conditions, digital and Consumer behaviour and preferences continue to change and are influenced by factors such as economic conditions, digital and Consumer behaviour and preferences continue to change and are influenced by factors such as economic conditions, digital and Consumer behaviour and preferences continue to change and are influenced by factors such as economic conditions, digital and Consumer behaviour and preferences continue to change and are influenced by factors such as economic conditions, digital and technological development and disruption, healthy living trends and increasing choices in both online and in-store retail options. Consumer behaviour and preferences continue to change and are influenced by factors such as economic conditions, digital and technological development and disruption, healthy living trends and increasing choices in both online and in-store retail options. technological development and disruption, healthy living trends and increasing choices in both online and in-store retail options. technological development and disruption, healthy living trends and increasing choices in both online and in-store retail options. These changes may impact Metcash’s sales mix and earnings. Metcash’s strategy puts customers and consumers first, with ongoing technological development and disruption, healthy living trends and increasing choices in both online and in-store retail options. These changes may impact Metcash’s sales mix and earnings. Metcash’s strategy puts customers and consumers first, with ongoing technological development and disruption, healthy living trends and increasing choices in both online and in-store retail options. These changes may impact Metcash’s sales mix and earnings. Metcash’s strategy puts customers and consumers first, with ongoing These changes may impact Metcash’s sales mix and earnings. Metcash’s strategy puts customers and consumers first, with ongoing focus on our shopper-led range, e-commerce and loyalty, store quality and overall perception of value at checkout. These changes may impact Metcash’s sales mix and earnings. Metcash’s strategy puts customers and consumers first, with ongoing focus on our shopper-led range, e-commerce and loyalty, store quality and overall perception of value at checkout. These changes may impact Metcash’s sales mix and earnings. Metcash’s strategy puts customers and consumers first, with ongoing focus on our shopper-led range, e-commerce and loyalty, store quality and overall perception of value at checkout. focus on our shopper-led range, e-commerce and loyalty, store quality and overall perception of value at checkout. focus on our shopper-led range, e-commerce and loyalty, store quality and overall perception of value at checkout. focus on our shopper-led range, e-commerce and loyalty, store quality and overall perception of value at checkout. Metcash is planning to accelerate its investment in digital, expanding our capability and improving our delivery of digital solutions to Metcash is planning to accelerate its investment in digital, expanding our capability and improving our delivery of digital solutions to Metcash is planning to accelerate its investment in digital, expanding our capability and improving our delivery of digital solutions to Metcash is planning to accelerate its investment in digital, expanding our capability and improving our delivery of digital solutions to our retailers and shoppers. This will be achieved through investment in the ‘Metcash Digital Accelerator’, which is built on three key Metcash is planning to accelerate its investment in digital, expanding our capability and improving our delivery of digital solutions to our retailers and shoppers. This will be achieved through investment in the ‘Metcash Digital Accelerator’, which is built on three key Metcash is planning to accelerate its investment in digital, expanding our capability and improving our delivery of digital solutions to our retailers and shoppers. This will be achieved through investment in the ‘Metcash Digital Accelerator’, which is built on three key our retailers and shoppers. This will be achieved through investment in the ‘Metcash Digital Accelerator’, which is built on three key principles: driving digital sales, investing in digital capability over time, and using funding more efficiently. our retailers and shoppers. This will be achieved through investment in the ‘Metcash Digital Accelerator’, which is built on three key principles: driving digital sales, investing in digital capability over time, and using funding more efficiently. our retailers and shoppers. This will be achieved through investment in the ‘Metcash Digital Accelerator’, which is built on three key principles: driving digital sales, investing in digital capability over time, and using funding more efficiently. principles: driving digital sales, investing in digital capability over time, and using funding more efficiently. principles: driving digital sales, investing in digital capability over time, and using funding more efficiently. principles: driving digital sales, investing in digital capability over time, and using funding more efficiently. In executing its strategy, there is a risk that Metcash may experience project execution issues or may not realise the full benefits of In executing its strategy, there is a risk that Metcash may experience project execution issues or may not realise the full benefits of In executing its strategy, there is a risk that Metcash may experience project execution issues or may not realise the full benefits of In executing its strategy, there is a risk that Metcash may experience project execution issues or may not realise the full benefits of In executing its strategy, there is a risk that Metcash may experience project execution issues or may not realise the full benefits of projects that underpin its strategic plan. There is also a risk that projects may experience scope, time or cost variability or overruns. In executing its strategy, there is a risk that Metcash may experience project execution issues or may not realise the full benefits of projects that underpin its strategic plan. There is also a risk that projects may experience scope, time or cost variability or overruns. projects that underpin its strategic plan. There is also a risk that projects may experience scope, time or cost variability or overruns. projects that underpin its strategic plan. There is also a risk that projects may experience scope, time or cost variability or overruns. projects that underpin its strategic plan. There is also a risk that projects may experience scope, time or cost variability or overruns. projects that underpin its strategic plan. There is also a risk that projects may experience scope, time or cost variability or overruns. Metcash’s business operations and strategic priorities are subject to ongoing review and development. Management regularly reviews Metcash’s business operations and strategic priorities are subject to ongoing review and development. Management regularly reviews Metcash’s business operations and strategic priorities are subject to ongoing review and development. Management regularly reviews Metcash’s business operations and strategic priorities are subject to ongoing review and development. Management regularly reviews plans against market changes and, where necessary, modifies its approach. Metcash’s business operations and strategic priorities are subject to ongoing review and development. Management regularly reviews plans against market changes and, where necessary, modifies its approach. Metcash’s business operations and strategic priorities are subject to ongoing review and development. Management regularly reviews plans against market changes and, where necessary, modifies its approach. plans against market changes and, where necessary, modifies its approach. plans against market changes and, where necessary, modifies its approach. plans against market changes and, where necessary, modifies its approach. COVID-19 risks COVID-19 risks COVID-19 risks COVID-19 risks COVID-19 risks COVID-19 risks At the start of the COVID-19 pandemic there was a high degree of uncertainty as to the potential impact it may have on the broader At the start of the COVID-19 pandemic there was a high degree of uncertainty as to the potential impact it may have on the broader At the start of the COVID-19 pandemic there was a high degree of uncertainty as to the potential impact it may have on the broader At the start of the COVID-19 pandemic there was a high degree of uncertainty as to the potential impact it may have on the broader economy and on Metcash’s operations. As the pandemic progressed it was evident that Metcash’s Food business provides a critical At the start of the COVID-19 pandemic there was a high degree of uncertainty as to the potential impact it may have on the broader economy and on Metcash’s operations. As the pandemic progressed it was evident that Metcash’s Food business provides a critical At the start of the COVID-19 pandemic there was a high degree of uncertainty as to the potential impact it may have on the broader economy and on Metcash’s operations. As the pandemic progressed it was evident that Metcash’s Food business provides a critical economy and on Metcash’s operations. As the pandemic progressed it was evident that Metcash’s Food business provides a critical service to local communities across Australia, ensuring the continued supply of food and grocery products for people staying closer economy and on Metcash’s operations. As the pandemic progressed it was evident that Metcash’s Food business provides a critical service to local communities across Australia, ensuring the continued supply of food and grocery products for people staying closer economy and on Metcash’s operations. As the pandemic progressed it was evident that Metcash’s Food business provides a critical service to local communities across Australia, ensuring the continued supply of food and grocery products for people staying closer service to local communities across Australia, ensuring the continued supply of food and grocery products for people staying closer service to local communities across Australia, ensuring the continued supply of food and grocery products for people staying closer to their homes. All of Metcash’s pillars have performed strongly during the pandemic, with some minor operational complexities service to local communities across Australia, ensuring the continued supply of food and grocery products for people staying closer to their homes. All of Metcash’s pillars have performed strongly during the pandemic, with some minor operational complexities to their homes. All of Metcash’s pillars have performed strongly during the pandemic, with some minor operational complexities to their homes. All of Metcash’s pillars have performed strongly during the pandemic, with some minor operational complexities caused by supply chain disruption, quarantines, lockdowns, travel restrictions, and actions of health authorities. to their homes. All of Metcash’s pillars have performed strongly during the pandemic, with some minor operational complexities caused by supply chain disruption, quarantines, lockdowns, travel restrictions, and actions of health authorities. to their homes. All of Metcash’s pillars have performed strongly during the pandemic, with some minor operational complexities caused by supply chain disruption, quarantines, lockdowns, travel restrictions, and actions of health authorities. caused by supply chain disruption, quarantines, lockdowns, travel restrictions, and actions of health authorities. caused by supply chain disruption, quarantines, lockdowns, travel restrictions, and actions of health authorities. caused by supply chain disruption, quarantines, lockdowns, travel restrictions, and actions of health authorities. The Group’s operations may be directly and indirectly impacted by any prolonged or ongoing period of COVID-19 and the resulting The Group’s operations may be directly and indirectly impacted by any prolonged or ongoing period of COVID-19 and the resulting The Group’s operations may be directly and indirectly impacted by any prolonged or ongoing period of COVID-19 and the resulting The Group’s operations may be directly and indirectly impacted by any prolonged or ongoing period of COVID-19 and the resulting economic uncertainty that may arise. In particular, continued restrictions such as social distancing, quarantines, travel restrictions, The Group’s operations may be directly and indirectly impacted by any prolonged or ongoing period of COVID-19 and the resulting economic uncertainty that may arise. In particular, continued restrictions such as social distancing, quarantines, travel restrictions, The Group’s operations may be directly and indirectly impacted by any prolonged or ongoing period of COVID-19 and the resulting economic uncertainty that may arise. In particular, continued restrictions such as social distancing, quarantines, travel restrictions, economic uncertainty that may arise. In particular, continued restrictions such as social distancing, quarantines, travel restrictions, economic uncertainty that may arise. In particular, continued restrictions such as social distancing, quarantines, travel restrictions, work stoppages, health authority actions, lockdowns and other related measures may impact our operational and financial economic uncertainty that may arise. In particular, continued restrictions such as social distancing, quarantines, travel restrictions, work stoppages, health authority actions, lockdowns and other related measures may impact our operational and financial work stoppages, health authority actions, lockdowns and other related measures may impact our operational and financial work stoppages, health authority actions, lockdowns and other related measures may impact our operational and financial performance. Further, the discontinuation of COVID-19 government assistance measures supporting the economy may also impact work stoppages, health authority actions, lockdowns and other related measures may impact our operational and financial performance. Further, the discontinuation of COVID-19 government assistance measures supporting the economy may also impact work stoppages, health authority actions, lockdowns and other related measures may impact our operational and financial performance. Further, the discontinuation of COVID-19 government assistance measures supporting the economy may also impact performance. Further, the discontinuation of COVID-19 government assistance measures supporting the economy may also impact the Group’s operations. performance. Further, the discontinuation of COVID-19 government assistance measures supporting the economy may also impact the Group’s operations. performance. Further, the discontinuation of COVID-19 government assistance measures supporting the economy may also impact the Group’s operations. the Group’s operations. the Group’s operations. the Group’s operations. Competition risks Competition risks Competition risks Competition risks Competition risks Competition risks Any increase in competitive activity from new or existing competitors (including in the form of a new market entrant with a wholesaler Any increase in competitive activity from new or existing competitors (including in the form of a new market entrant with a wholesaler Any increase in competitive activity from new or existing competitors (including in the form of a new market entrant with a wholesaler Any increase in competitive activity from new or existing competitors (including in the form of a new market entrant with a wholesaler model, where suppliers sell directly to the Group’s customers, where customers form their own buying groups to collectively negotiate Any increase in competitive activity from new or existing competitors (including in the form of a new market entrant with a wholesaler model, where suppliers sell directly to the Group’s customers, where customers form their own buying groups to collectively negotiate Any increase in competitive activity from new or existing competitors (including in the form of a new market entrant with a wholesaler model, where suppliers sell directly to the Group’s customers, where customers form their own buying groups to collectively negotiate model, where suppliers sell directly to the Group’s customers, where customers form their own buying groups to collectively negotiate and purchase directly from suppliers or where indirect competitors change their business models to compete directly with the Group) model, where suppliers sell directly to the Group’s customers, where customers form their own buying groups to collectively negotiate and purchase directly from suppliers or where indirect competitors change their business models to compete directly with the Group) model, where suppliers sell directly to the Group’s customers, where customers form their own buying groups to collectively negotiate and purchase directly from suppliers or where indirect competitors change their business models to compete directly with the Group) and purchase directly from suppliers or where indirect competitors change their business models to compete directly with the Group) and purchase directly from suppliers or where indirect competitors change their business models to compete directly with the Group) may have a detrimental effect on the Group’s operations, particularly if Metcash fails to respond effectively to that competitive activity and purchase directly from suppliers or where indirect competitors change their business models to compete directly with the Group) may have a detrimental effect on the Group’s operations, particularly if Metcash fails to respond effectively to that competitive activity may have a detrimental effect on the Group’s operations, particularly if Metcash fails to respond effectively to that competitive activity may have a detrimental effect on the Group’s operations, particularly if Metcash fails to respond effectively to that competitive activity or its response is delayed (for example, as a result of the time required to engage with the Group’s independent retail network in order may have a detrimental effect on the Group’s operations, particularly if Metcash fails to respond effectively to that competitive activity or its response is delayed (for example, as a result of the time required to engage with the Group’s independent retail network in order may have a detrimental effect on the Group’s operations, particularly if Metcash fails to respond effectively to that competitive activity or its response is delayed (for example, as a result of the time required to engage with the Group’s independent retail network in order or its response is delayed (for example, as a result of the time required to engage with the Group’s independent retail network in order to implement an initiative). Increased competition may also adversely impact Metcash’s long-term performance and profitability. or its response is delayed (for example, as a result of the time required to engage with the Group’s independent retail network in order to implement an initiative). Increased competition may also adversely impact Metcash’s long-term performance and profitability. or its response is delayed (for example, as a result of the time required to engage with the Group’s independent retail network in order to implement an initiative). Increased competition may also adversely impact Metcash’s long-term performance and profitability. to implement an initiative). Increased competition may also adversely impact Metcash’s long-term performance and profitability. to implement an initiative). Increased competition may also adversely impact Metcash’s long-term performance and profitability. to implement an initiative). Increased competition may also adversely impact Metcash’s long-term performance and profitability. Key brands risk Key brands risk Key brands risk Key brands risk Key brands risk Key brands risk Metcash’s success in generating profits and increasing its market share is based on the success of the key brands it owns or licences. Metcash’s success in generating profits and increasing its market share is based on the success of the key brands it owns or licences. Metcash’s success in generating profits and increasing its market share is based on the success of the key brands it owns or licences. Metcash’s success in generating profits and increasing its market share is based on the success of the key brands it owns or licences. Reliance on key brands makes Metcash vulnerable to brand damage from negative publicity, product tampering or recalls, Metcash’s success in generating profits and increasing its market share is based on the success of the key brands it owns or licences. Reliance on key brands makes Metcash vulnerable to brand damage from negative publicity, product tampering or recalls, Metcash’s success in generating profits and increasing its market share is based on the success of the key brands it owns or licences. Reliance on key brands makes Metcash vulnerable to brand damage from negative publicity, product tampering or recalls, Reliance on key brands makes Metcash vulnerable to brand damage from negative publicity, product tampering or recalls, unauthorised use of its brands or ineffective brand management by Metcash or its licensees, increasing the risk of asset write downs. Reliance on key brands makes Metcash vulnerable to brand damage from negative publicity, product tampering or recalls, unauthorised use of its brands or ineffective brand management by Metcash or its licensees, increasing the risk of asset write downs. Reliance on key brands makes Metcash vulnerable to brand damage from negative publicity, product tampering or recalls, unauthorised use of its brands or ineffective brand management by Metcash or its licensees, increasing the risk of asset write downs. unauthorised use of its brands or ineffective brand management by Metcash or its licensees, increasing the risk of asset write downs. unauthorised use of its brands or ineffective brand management by Metcash or its licensees, increasing the risk of asset write downs. unauthorised use of its brands or ineffective brand management by Metcash or its licensees, increasing the risk of asset write downs. Operational and compliance risks Operational and compliance risks Operational and compliance risks Operational and compliance risks Operational and compliance risks Operational and compliance risks As Australia’s leading wholesaler, Metcash is reliant upon the success of its suppliers and retailers. Metcash continues to invest in As Australia’s leading wholesaler, Metcash is reliant upon the success of its suppliers and retailers. Metcash continues to invest in As Australia’s leading wholesaler, Metcash is reliant upon the success of its suppliers and retailers. Metcash continues to invest in As Australia’s leading wholesaler, Metcash is reliant upon the success of its suppliers and retailers. Metcash continues to invest in programs to improve the health of the independent retail network and improving Metcash’s infrastructure to make it simpler to do As Australia’s leading wholesaler, Metcash is reliant upon the success of its suppliers and retailers. Metcash continues to invest in programs to improve the health of the independent retail network and improving Metcash’s infrastructure to make it simpler to do As Australia’s leading wholesaler, Metcash is reliant upon the success of its suppliers and retailers. Metcash continues to invest in programs to improve the health of the independent retail network and improving Metcash’s infrastructure to make it simpler to do programs to improve the health of the independent retail network and improving Metcash’s infrastructure to make it simpler to do business. These programs aim to strengthen Metcash as the business partner of choice for both its suppliers and retailers. As with any programs to improve the health of the independent retail network and improving Metcash’s infrastructure to make it simpler to do business. These programs aim to strengthen Metcash as the business partner of choice for both its suppliers and retailers. As with any programs to improve the health of the independent retail network and improving Metcash’s infrastructure to make it simpler to do business. These programs aim to strengthen Metcash as the business partner of choice for both its suppliers and retailers. As with any business. These programs aim to strengthen Metcash as the business partner of choice for both its suppliers and retailers. As with any business. These programs aim to strengthen Metcash as the business partner of choice for both its suppliers and retailers. As with any significant change, there is a risk that these transformation programs fail to deliver the expected benefits. Metcash has strengthened business. These programs aim to strengthen Metcash as the business partner of choice for both its suppliers and retailers. As with any significant change, there is a risk that these transformation programs fail to deliver the expected benefits. Metcash has strengthened significant change, there is a risk that these transformation programs fail to deliver the expected benefits. Metcash has strengthened significant change, there is a risk that these transformation programs fail to deliver the expected benefits. Metcash has strengthened its governance frameworks to manage these change programs through the establishment of dedicated project teams to ensure significant change, there is a risk that these transformation programs fail to deliver the expected benefits. Metcash has strengthened its governance frameworks to manage these change programs through the establishment of dedicated project teams to ensure significant change, there is a risk that these transformation programs fail to deliver the expected benefits. Metcash has strengthened its governance frameworks to manage these change programs through the establishment of dedicated project teams to ensure its governance frameworks to manage these change programs through the establishment of dedicated project teams to ensure projects are delivered and risks are addressed in a timely manner. its governance frameworks to manage these change programs through the establishment of dedicated project teams to ensure projects are delivered and risks are addressed in a timely manner. its governance frameworks to manage these change programs through the establishment of dedicated project teams to ensure projects are delivered and risks are addressed in a timely manner. projects are delivered and risks are addressed in a timely manner. projects are delivered and risks are addressed in a timely manner. projects are delivered and risks are addressed in a timely manner. Metcash’s operations require compliance with various regulatory requirements including work health & safety, food safety, Metcash’s operations require compliance with various regulatory requirements including work health & safety, food safety, Metcash’s operations require compliance with various regulatory requirements including work health & safety, food safety, Metcash’s operations require compliance with various regulatory requirements including work health & safety, food safety, Metcash’s operations require compliance with various regulatory requirements including work health & safety, food safety, environmental regulations, workplace industrial relations, public liability, privacy & security, financial and legal. Any regulatory Metcash’s operations require compliance with various regulatory requirements including work health & safety, food safety, environmental regulations, workplace industrial relations, public liability, privacy & security, financial and legal. Any regulatory environmental regulations, workplace industrial relations, public liability, privacy & security, financial and legal. Any regulatory environmental regulations, workplace industrial relations, public liability, privacy & security, financial and legal. Any regulatory breach could have a material negative impact on the wellbeing, reputation or financial results of Metcash or its stakeholders. The environmental regulations, workplace industrial relations, public liability, privacy & security, financial and legal. Any regulatory breach could have a material negative impact on the wellbeing, reputation or financial results of Metcash or its stakeholders. The environmental regulations, workplace industrial relations, public liability, privacy & security, financial and legal. Any regulatory breach could have a material negative impact on the wellbeing, reputation or financial results of Metcash or its stakeholders. The breach could have a material negative impact on the wellbeing, reputation or financial results of Metcash or its stakeholders. The Group’s internal processes are regularly assessed and tested as part of risk and assurance programs addressing areas including; safety, breach could have a material negative impact on the wellbeing, reputation or financial results of Metcash or its stakeholders. The Group’s internal processes are regularly assessed and tested as part of risk and assurance programs addressing areas including; safety, breach could have a material negative impact on the wellbeing, reputation or financial results of Metcash or its stakeholders. The Group’s internal processes are regularly assessed and tested as part of risk and assurance programs addressing areas including; safety, Group’s internal processes are regularly assessed and tested as part of risk and assurance programs addressing areas including; safety, Group’s internal processes are regularly assessed and tested as part of risk and assurance programs addressing areas including; safety, security, sustainability, chain of responsibility, quality and food safety. Metcash maintains a strong ‘safety-first’ culture and has Group’s internal processes are regularly assessed and tested as part of risk and assurance programs addressing areas including; safety, security, sustainability, chain of responsibility, quality and food safety. Metcash maintains a strong ‘safety-first’ culture and has security, sustainability, chain of responsibility, quality and food safety. Metcash maintains a strong ‘safety-first’ culture and has security, sustainability, chain of responsibility, quality and food safety. Metcash maintains a strong ‘safety-first’ culture and has established standards and ‘Chain of Responsibility’ policies to identify and manage risk. security, sustainability, chain of responsibility, quality and food safety. Metcash maintains a strong ‘safety-first’ culture and has established standards and ‘Chain of Responsibility’ policies to identify and manage risk. security, sustainability, chain of responsibility, quality and food safety. Metcash maintains a strong ‘safety-first’ culture and has established standards and ‘Chain of Responsibility’ policies to identify and manage risk. established standards and ‘Chain of Responsibility’ policies to identify and manage risk. established standards and ‘Chain of Responsibility’ policies to identify and manage risk. established standards and ‘Chain of Responsibility’ policies to identify and manage risk. Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 47 8 8 8 8 8 8 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Directors’ Report For the year ended 30 April 2021 Social responsibility, environment and climate change risks Metcash is committed to ‘Championing successful independents’ and a key element of this is underpinned by ensuring its operations are conducted in a socially responsible manner. Metcash has a moderate exposure to environmental risks. Metcash’s operations could be impacted by natural disasters, extreme weather events or other catastrophic events which could materially disrupt its operations and supply chain. There is also a risk that, with time, the frequency and intensity of natural disasters and extreme weather events may increase if anthropogenic climate change accelerates or worsens. As Australia’s leading wholesaler, Metcash is conscious of the impact its operations may have on the environment. Although our operational footprint is broad with a presence in all states and territories, Metcash is not considered to be a large emitter of carbon emissions, with total CO2 equivalent (Scope 1 and Scope 2 emissions) being not much above the 50Kt threshold for reporting under the National Greenhouse and Energy Reporting Scheme. Metcash seeks to manage its environmental impact through programs and initiatives to manage its energy consumption and waste. During FY20, Metcash conducted a climate change risk assessment, which considered the physical and transitional risks of climate change on the Group’s operations. The main drivers of physical climate change risk for Metcash are the potential increase in frequency and severity of acute climate change events, such as bushfires, drought, extreme storms and cyclones. The assessment concluded that the highest inherent rated risk is likely to be an increase in insurance premiums year on year. Other lower rated inherent rated risks include: damage to facilities and equipment, a temporary increase in costs to service our retailers during these events, a temporary disruption to our supply chain and distribution network, reduced availability and quality of fresh products, a decrease in the availability of timber products due to the impact of bushfires. Regarding transitional risks, the assessment found there are medium level transition risks, including potential reputational damage should Metcash not meet stakeholder expectations on climate management, and additional compliance costs should government introduce new greenhouse gas emission regulations or laws. For further information on how we manage environmental risks please refer to the Sustainability Report within our Annual Report. Metcash has a low to moderate exposure to social risks. Our business and our people are driven by our purpose of ‘Championing successful independents’, and Metcash is proud to support independent retailers who are at the heart of local communities across Australia. At the core of our Purpose and Vision are our Values – we believe that independence is worth fighting for; in treating our people, retailers and suppliers the way we like to be treated; and in giving back to the communities where we live and work. We contribute to our local communities through the IGA Community Chest Program, disaster relief, and through our partnership with Foodbank. Metcash meets the threshold for reporting under the Modern Slavery Act 2018 (Cth) with our most recent statement available at modernslaveryregister.gov.au and our Anti-Slavery Policy is available on our website. Metcash is taking steps to continually improve its exposure to modern slavery risks in its supply chain. Further, under pending reforms to the Security of Critical Infrastructure Act 2018 (Cth), Metcash has been advised that it will be deemed a ‘critical food and grocery asset’, which will require it to implement certain measures to meet compliance with the Act. For further information on how we manage social risks please refer to the Sustainability Report within our Annual Report. Directors’ Report Directors’ Report Directors’ Report Directors’ Report Directors’ Report Directors’ Report For the year ended 30 April 2021 For the year ended 30 April 2021 For the year ended 30 April 2021 For the year ended 30 April 2021 For the year ended 30 April 2021 Inefficiency or failure within Metcash’s supply chain or in key support systems could impact the Group’s ability to deliver on its Inefficiency or failure within Metcash’s supply chain or in key support systems could impact the Group’s ability to deliver on its Inefficiency or failure within Metcash’s supply chain or in key support systems could impact the Group’s ability to deliver on its Inefficiency or failure within Metcash’s supply chain or in key support systems could impact the Group’s ability to deliver on its objectives. Metcash’s strategic planning process and ongoing monitoring of operations ensure its supply chain and support systems Inefficiency or failure within Metcash’s supply chain or in key support systems could impact the Group’s ability to deliver on its objectives. Metcash’s strategic planning process and ongoing monitoring of operations ensure its supply chain and support systems objectives. Metcash’s strategic planning process and ongoing monitoring of operations ensure its supply chain and support systems objectives. Metcash’s strategic planning process and ongoing monitoring of operations ensure its supply chain and support systems are able to scale appropriately to respond to its business needs. objectives. Metcash’s strategic planning process and ongoing monitoring of operations ensure its supply chain and support systems are able to scale appropriately to respond to its business needs. are able to scale appropriately to respond to its business needs. are able to scale appropriately to respond to its business needs. are able to scale appropriately to respond to its business needs. Property and facilities risk Property and facilities risk Property and facilities risk Property and facilities risk Property and facilities risk Metcash leases facilities for the wholesale distribution of grocery, fresh produce, liquor, hardware and other fast-moving consumer Metcash leases facilities for the wholesale distribution of grocery, fresh produce, liquor, hardware and other fast-moving consumer Metcash leases facilities for the wholesale distribution of grocery, fresh produce, liquor, hardware and other fast-moving consumer Metcash leases facilities for the wholesale distribution of grocery, fresh produce, liquor, hardware and other fast-moving consumer goods. Damage to or destruction of these facilities could result in the loss or reduction of distribution capability and hence adversely Metcash leases facilities for the wholesale distribution of grocery, fresh produce, liquor, hardware and other fast-moving consumer goods. Damage to or destruction of these facilities could result in the loss or reduction of distribution capability and hence adversely goods. Damage to or destruction of these facilities could result in the loss or reduction of distribution capability and hence adversely goods. Damage to or destruction of these facilities could result in the loss or reduction of distribution capability and hence adversely impact Metcash’s financial results. While Metcash has in place insurances that it considers are sufficient for a business of its type and goods. Damage to or destruction of these facilities could result in the loss or reduction of distribution capability and hence adversely impact Metcash’s financial results. While Metcash has in place insurances that it considers are sufficient for a business of its type and impact Metcash’s financial results. While Metcash has in place insurances that it considers are sufficient for a business of its type and impact Metcash’s financial results. While Metcash has in place insurances that it considers are sufficient for a business of its type and size, Metcash will be required to pay for the loss on any event up to the deductible and self-insurance retention. impact Metcash’s financial results. While Metcash has in place insurances that it considers are sufficient for a business of its type and size, Metcash will be required to pay for the loss on any event up to the deductible and self-insurance retention. size, Metcash will be required to pay for the loss on any event up to the deductible and self-insurance retention. size, Metcash will be required to pay for the loss on any event up to the deductible and self-insurance retention. size, Metcash will be required to pay for the loss on any event up to the deductible and self-insurance retention. Financial risks Financial risks Financial risks Financial risks Financial risks Metcash’s ability to reduce its cost of doing business is critical to support independent retailers in remaining competitive in the Metcash’s ability to reduce its cost of doing business is critical to support independent retailers in remaining competitive in the Metcash’s ability to reduce its cost of doing business is critical to support independent retailers in remaining competitive in the Metcash’s ability to reduce its cost of doing business is critical to support independent retailers in remaining competitive in the continued challenging environment. Competitive trading conditions and broader adverse economic conditions can increase the credit Metcash’s ability to reduce its cost of doing business is critical to support independent retailers in remaining competitive in the continued challenging environment. Competitive trading conditions and broader adverse economic conditions can increase the credit continued challenging environment. Competitive trading conditions and broader adverse economic conditions can increase the credit continued challenging environment. Competitive trading conditions and broader adverse economic conditions can increase the credit risk associated with the Group’s activities. Metcash’s strategy is to support successful independents through appropriate credit continued challenging environment. Competitive trading conditions and broader adverse economic conditions can increase the credit risk associated with the Group’s activities. Metcash’s strategy is to support successful independents through appropriate credit risk associated with the Group’s activities. Metcash’s strategy is to support successful independents through appropriate credit risk associated with the Group’s activities. Metcash’s strategy is to support successful independents through appropriate credit management processes. risk associated with the Group’s activities. Metcash’s strategy is to support successful independents through appropriate credit management processes. management processes. management processes. management processes. Funding and liquidity risk continue to be relevant to the Group due to the need to adequately fund business operations, growth Funding and liquidity risk continue to be relevant to the Group due to the need to adequately fund business operations, growth Funding and liquidity risk continue to be relevant to the Group due to the need to adequately fund business operations, growth Funding and liquidity risk continue to be relevant to the Group due to the need to adequately fund business operations, growth initiatives and absorb potential loss events that may arise. Inability to adequately fund the Group’s business operations and growth Funding and liquidity risk continue to be relevant to the Group due to the need to adequately fund business operations, growth initiatives and absorb potential loss events that may arise. Inability to adequately fund the Group’s business operations and growth initiatives and absorb potential loss events that may arise. Inability to adequately fund the Group’s business operations and growth initiatives and absorb potential loss events that may arise. Inability to adequately fund the Group’s business operations and growth plans may lead to difficulty in executing the Group’s strategy. Metcash maintains a prudent approach towards capital management, initiatives and absorb potential loss events that may arise. Inability to adequately fund the Group’s business operations and growth plans may lead to difficulty in executing the Group’s strategy. Metcash maintains a prudent approach towards capital management, plans may lead to difficulty in executing the Group’s strategy. Metcash maintains a prudent approach towards capital management, plans may lead to difficulty in executing the Group’s strategy. Metcash maintains a prudent approach towards capital management, which includes optimising working capital, targeted capital expenditure, capital and asset recycling and careful consideration of its plans may lead to difficulty in executing the Group’s strategy. Metcash maintains a prudent approach towards capital management, which includes optimising working capital, targeted capital expenditure, capital and asset recycling and careful consideration of its which includes optimising working capital, targeted capital expenditure, capital and asset recycling and careful consideration of its which includes optimising working capital, targeted capital expenditure, capital and asset recycling and careful consideration of its dividend policy. which includes optimising working capital, targeted capital expenditure, capital and asset recycling and careful consideration of its dividend policy. dividend policy. dividend policy. dividend policy. In addition, banking facilities are maintained with sufficient tenure, diversity and headroom to fund business operations. However, In addition, banking facilities are maintained with sufficient tenure, diversity and headroom to fund business operations. However, In addition, banking facilities are maintained with sufficient tenure, diversity and headroom to fund business operations. However, In addition, banking facilities are maintained with sufficient tenure, diversity and headroom to fund business operations. However, these is a risk that the Group may be unable to refinance or renew its banking facilities following expiry, or will only be able to refinance In addition, banking facilities are maintained with sufficient tenure, diversity and headroom to fund business operations. However, these is a risk that the Group may be unable to refinance or renew its banking facilities following expiry, or will only be able to refinance these is a risk that the Group may be unable to refinance or renew its banking facilities following expiry, or will only be able to refinance these is a risk that the Group may be unable to refinance or renew its banking facilities following expiry, or will only be able to refinance or renew those facilities on terms that are less favourable to the Group than existing terms. Any inability to refinance banking facilities these is a risk that the Group may be unable to refinance or renew its banking facilities following expiry, or will only be able to refinance or renew those facilities on terms that are less favourable to the Group than existing terms. Any inability to refinance banking facilities or renew those facilities on terms that are less favourable to the Group than existing terms. Any inability to refinance banking facilities or renew those facilities on terms that are less favourable to the Group than existing terms. Any inability to refinance banking facilities or obtain capital or financing generally, on favourable terms or at all, may have a material adverse effect on the Group’s financial or renew those facilities on terms that are less favourable to the Group than existing terms. Any inability to refinance banking facilities or obtain capital or financing generally, on favourable terms or at all, may have a material adverse effect on the Group’s financial or obtain capital or financing generally, on favourable terms or at all, may have a material adverse effect on the Group’s financial or obtain capital or financing generally, on favourable terms or at all, may have a material adverse effect on the Group’s financial performance and position. or obtain capital or financing generally, on favourable terms or at all, may have a material adverse effect on the Group’s financial performance and position. performance and position. performance and position. performance and position. The Group’s financial risk management framework is discussed in further detail in note 16 of the financial statements. The Group’s financial risk management framework is discussed in further detail in note 16 of the financial statements. The Group’s financial risk management framework is discussed in further detail in note 16 of the financial statements. The Group’s financial risk management framework is discussed in further detail in note 16 of the financial statements. The Group’s financial risk management framework is discussed in further detail in note 16 of the financial statements. Trading and customer risks Trading and customer risks Trading and customer risks Trading and customer risks Trading and customer risks Metcash’s ability to operate efficiently is critical to support independent retailers in remaining competitive. A disruption to the Metcash’s ability to operate efficiently is critical to support independent retailers in remaining competitive. A disruption to the Metcash’s ability to operate efficiently is critical to support independent retailers in remaining competitive. A disruption to the Metcash’s ability to operate efficiently is critical to support independent retailers in remaining competitive. A disruption to the business could result in an increased cost to serve retailers and inability to meet customers’ requirements. Metcash’s ability to operate efficiently is critical to support independent retailers in remaining competitive. A disruption to the business could result in an increased cost to serve retailers and inability to meet customers’ requirements. business could result in an increased cost to serve retailers and inability to meet customers’ requirements. business could result in an increased cost to serve retailers and inability to meet customers’ requirements. business could result in an increased cost to serve retailers and inability to meet customers’ requirements. Tobacco sales represent a significant proportion of the products Metcash supplies to its independent retailers. In September 2020, Tobacco sales represent a significant proportion of the products Metcash supplies to its independent retailers. In September 2020, Tobacco sales represent a significant proportion of the products Metcash supplies to its independent retailers. In September 2020, Tobacco sales represent a significant proportion of the products Metcash supplies to its independent retailers. In September 2020, the Australian Government’s legislated annual 12.5% increase in customs and excise duties ceased. Consequently, Metcash’s earnings Tobacco sales represent a significant proportion of the products Metcash supplies to its independent retailers. In September 2020, the Australian Government’s legislated annual 12.5% increase in customs and excise duties ceased. Consequently, Metcash’s earnings the Australian Government’s legislated annual 12.5% increase in customs and excise duties ceased. Consequently, Metcash’s earnings the Australian Government’s legislated annual 12.5% increase in customs and excise duties ceased. Consequently, Metcash’s earnings will no longer include a stock revaluation gain based on the value of tobacco stock on hand at the time of the excise duty and the the Australian Government’s legislated annual 12.5% increase in customs and excise duties ceased. Consequently, Metcash’s earnings will no longer include a stock revaluation gain based on the value of tobacco stock on hand at the time of the excise duty and the will no longer include a stock revaluation gain based on the value of tobacco stock on hand at the time of the excise duty and the will no longer include a stock revaluation gain based on the value of tobacco stock on hand at the time of the excise duty and the related sales price increase. Metcash will continue to recognise tobacco stock revaluation gains from any increase in the consumer will no longer include a stock revaluation gain based on the value of tobacco stock on hand at the time of the excise duty and the related sales price increase. Metcash will continue to recognise tobacco stock revaluation gains from any increase in the consumer related sales price increase. Metcash will continue to recognise tobacco stock revaluation gains from any increase in the consumer related sales price increase. Metcash will continue to recognise tobacco stock revaluation gains from any increase in the consumer price index during the year. Metcash has put in place mitigation strategies to support earnings performance following this impact. related sales price increase. Metcash will continue to recognise tobacco stock revaluation gains from any increase in the consumer price index during the year. Metcash has put in place mitigation strategies to support earnings performance following this impact. price index during the year. Metcash has put in place mitigation strategies to support earnings performance following this impact. price index during the year. Metcash has put in place mitigation strategies to support earnings performance following this impact. price index during the year. Metcash has put in place mitigation strategies to support earnings performance following this impact. In its Food pillar, Metcash services a number of large customers known as Multiple Store Owners (MSOs). These customers own and/or In its Food pillar, Metcash services a number of large customers known as Multiple Store Owners (MSOs). These customers own and/or In its Food pillar, Metcash services a number of large customers known as Multiple Store Owners (MSOs). These customers own and/or In its Food pillar, Metcash services a number of large customers known as Multiple Store Owners (MSOs). These customers own and/or operate more than one independent retail store, and in some cases can own and/or operate a sizeable number of stores (examples of In its Food pillar, Metcash services a number of large customers known as Multiple Store Owners (MSOs). These customers own and/or operate more than one independent retail store, and in some cases can own and/or operate a sizeable number of stores (examples of operate more than one independent retail store, and in some cases can own and/or operate a sizeable number of stores (examples of operate more than one independent retail store, and in some cases can own and/or operate a sizeable number of stores (examples of larger MSOs include Ritchies Stores Pty Ltd (Ritchies) and Romeo Retail Group). In addition, Metcash supplies Foodworks stores under operate more than one independent retail store, and in some cases can own and/or operate a sizeable number of stores (examples of larger MSOs include Ritchies Stores Pty Ltd (Ritchies) and Romeo Retail Group). In addition, Metcash supplies Foodworks stores under larger MSOs include Ritchies Stores Pty Ltd (Ritchies) and Romeo Retail Group). In addition, Metcash supplies Foodworks stores under larger MSOs include Ritchies Stores Pty Ltd (Ritchies) and Romeo Retail Group). In addition, Metcash supplies Foodworks stores under a supply agreement that is terminable by either party without cause on 12 months’ notice. If any one or more MSOs or Foodworks larger MSOs include Ritchies Stores Pty Ltd (Ritchies) and Romeo Retail Group). In addition, Metcash supplies Foodworks stores under a supply agreement that is terminable by either party without cause on 12 months’ notice. If any one or more MSOs or Foodworks a supply agreement that is terminable by either party without cause on 12 months’ notice. If any one or more MSOs or Foodworks a supply agreement that is terminable by either party without cause on 12 months’ notice. If any one or more MSOs or Foodworks were to materially reduce or cease to source their inventory from Metcash for any reason (including vertically integrating their supply a supply agreement that is terminable by either party without cause on 12 months’ notice. If any one or more MSOs or Foodworks were to materially reduce or cease to source their inventory from Metcash for any reason (including vertically integrating their supply were to materially reduce or cease to source their inventory from Metcash for any reason (including vertically integrating their supply were to materially reduce or cease to source their inventory from Metcash for any reason (including vertically integrating their supply chain, establishing an alternative buying group, purchasing from another source, entering into a Supply Agreement with a competitor were to materially reduce or cease to source their inventory from Metcash for any reason (including vertically integrating their supply chain, establishing an alternative buying group, purchasing from another source, entering into a Supply Agreement with a competitor chain, establishing an alternative buying group, purchasing from another source, entering into a Supply Agreement with a competitor chain, establishing an alternative buying group, purchasing from another source, entering into a Supply Agreement with a competitor or closure of stores due to insolvency or poor performance), this would adversely impact Metcash’s long-term performance and chain, establishing an alternative buying group, purchasing from another source, entering into a Supply Agreement with a competitor or closure of stores due to insolvency or poor performance), this would adversely impact Metcash’s long-term performance and or closure of stores due to insolvency or poor performance), this would adversely impact Metcash’s long-term performance and or closure of stores due to insolvency or poor performance), this would adversely impact Metcash’s long-term performance and profitability. or closure of stores due to insolvency or poor performance), this would adversely impact Metcash’s long-term performance and profitability. profitability. profitability. In addition, there are certain large contract customers in the Liquor business whose contracts are renewed on a regular basis. If one profitability. In addition, there are certain large contract customers in the Liquor business whose contracts are renewed on a regular basis. If one In addition, there are certain large contract customers in the Liquor business whose contracts are renewed on a regular basis. If one In addition, there are certain large contract customers in the Liquor business whose contracts are renewed on a regular basis. If one or more of these contract customers decided not to renew their supply contract this too could adversely impact Metcash’s long-term In addition, there are certain large contract customers in the Liquor business whose contracts are renewed on a regular basis. If one or more of these contract customers decided not to renew their supply contract this too could adversely impact Metcash’s long-term or more of these contract customers decided not to renew their supply contract this too could adversely impact Metcash’s long-term or more of these contract customers decided not to renew their supply contract this too could adversely impact Metcash’s long-term performance and profitability. Further, the Liquor business also has a number of large suppliers and if one or more of these suppliers or more of these contract customers decided not to renew their supply contract this too could adversely impact Metcash’s long-term performance and profitability. Further, the Liquor business also has a number of large suppliers and if one or more of these suppliers performance and profitability. Further, the Liquor business also has a number of large suppliers and if one or more of these suppliers performance and profitability. Further, the Liquor business also has a number of large suppliers and if one or more of these suppliers decided to no longer conduct business with Metcash, this too could adversely impact Metcash’s long-term performance and performance and profitability. Further, the Liquor business also has a number of large suppliers and if one or more of these suppliers decided to no longer conduct business with Metcash, this too could adversely impact Metcash’s long-term performance and decided to no longer conduct business with Metcash, this too could adversely impact Metcash’s long-term performance and decided to no longer conduct business with Metcash, this too could adversely impact Metcash’s long-term performance and profitability. decided to no longer conduct business with Metcash, this too could adversely impact Metcash’s long-term performance and profitability. profitability. profitability. profitability. Information technology risks Information technology risks Information technology risks Information technology risks Information technology risks Metcash relies on a number of complex information technology systems to support its warehousing and distribution, supply chain, Metcash relies on a number of complex information technology systems to support its warehousing and distribution, supply chain, Metcash relies on a number of complex information technology systems to support its warehousing and distribution, supply chain, Metcash relies on a number of complex information technology systems to support its warehousing and distribution, supply chain, customer service, marketing and finance operations. A severe disruption to the information technology systems may significantly Metcash relies on a number of complex information technology systems to support its warehousing and distribution, supply chain, customer service, marketing and finance operations. A severe disruption to the information technology systems may significantly customer service, marketing and finance operations. A severe disruption to the information technology systems may significantly customer service, marketing and finance operations. A severe disruption to the information technology systems may significantly impact the operations and value of Metcash. Metcash is embarking on a business transformation program called Project Horizon which customer service, marketing and finance operations. A severe disruption to the information technology systems may significantly impact the operations and value of Metcash. Metcash is embarking on a business transformation program called Project Horizon which impact the operations and value of Metcash. Metcash is embarking on a business transformation program called Project Horizon which impact the operations and value of Metcash. Metcash is embarking on a business transformation program called Project Horizon which will replace end-of-life technology, reducing operational risk and onerous maintenance costs. impact the operations and value of Metcash. Metcash is embarking on a business transformation program called Project Horizon which will replace end-of-life technology, reducing operational risk and onerous maintenance costs. will replace end-of-life technology, reducing operational risk and onerous maintenance costs. will replace end-of-life technology, reducing operational risk and onerous maintenance costs. will replace end-of-life technology, reducing operational risk and onerous maintenance costs. With expanding information privacy and security regulations, and an increasingly hostile cyber environment, Metcash recognises With expanding information privacy and security regulations, and an increasingly hostile cyber environment, Metcash recognises With expanding information privacy and security regulations, and an increasingly hostile cyber environment, Metcash recognises With expanding information privacy and security regulations, and an increasingly hostile cyber environment, Metcash recognises information privacy and cyber security as an increasing risk. Any breach by Metcash of privacy and security regulations could expose With expanding information privacy and security regulations, and an increasingly hostile cyber environment, Metcash recognises information privacy and cyber security as an increasing risk. Any breach by Metcash of privacy and security regulations could expose information privacy and cyber security as an increasing risk. Any breach by Metcash of privacy and security regulations could expose information privacy and cyber security as an increasing risk. Any breach by Metcash of privacy and security regulations could expose Metcash to penalties (including financial penalties), which could adversely affect Metcash’s financial position or cause reputational information privacy and cyber security as an increasing risk. Any breach by Metcash of privacy and security regulations could expose Metcash to penalties (including financial penalties), which could adversely affect Metcash’s financial position or cause reputational Metcash to penalties (including financial penalties), which could adversely affect Metcash’s financial position or cause reputational Metcash to penalties (including financial penalties), which could adversely affect Metcash’s financial position or cause reputational harm. Metcash to penalties (including financial penalties), which could adversely affect Metcash’s financial position or cause reputational harm. harm. harm. harm. 48 Metcash Annual Report 2021 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 9 9 9 9 9 Metcash Group Financial Report FY21 10 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Directors’ Report Directors’ Report For the year ended 30 April 2021 Social responsibility, environment and climate change risks Metcash is committed to ‘Championing successful independents’ and a key element of this is underpinned by ensuring its operations are conducted in a socially responsible manner. Metcash has a moderate exposure to environmental risks. Metcash’s operations could be impacted by natural disasters, extreme weather events or other catastrophic events which could materially disrupt its operations and supply chain. There is also a risk that, with time, the frequency and intensity of natural disasters and extreme weather events may increase if anthropogenic climate change accelerates or worsens. As Australia’s leading wholesaler, Metcash is conscious of the impact its operations may have on the environment. Although our operational footprint is broad with a presence in all states and territories, Metcash is not considered to be a large emitter of carbon emissions, with total CO2 equivalent (Scope 1 and Scope 2 emissions) being not much above the 50Kt threshold for reporting under the National Greenhouse and Energy Reporting Scheme. Metcash seeks to manage its environmental impact through programs and initiatives to manage its energy consumption and waste. During FY20, Metcash conducted a climate change risk assessment, which considered the physical and transitional risks of climate change on the Group’s operations. The main drivers of physical climate change risk for Metcash are the potential increase in frequency and severity of acute climate change events, such as bushfires, drought, extreme storms and cyclones. The assessment concluded that the highest inherent rated risk is likely to be an increase in insurance premiums year on year. Other lower rated inherent rated risks include: damage to facilities and equipment, a temporary increase in costs to service our retailers during these events, a temporary disruption to our supply chain and distribution network, reduced availability and quality of fresh products, a decrease in the availability of timber products due to the impact of bushfires. Regarding transitional risks, the assessment found there are medium level transition risks, including potential reputational damage should Metcash not meet stakeholder expectations on climate management, and additional compliance costs should government introduce new greenhouse gas emission regulations or laws. For further information on how we manage environmental risks please refer to the Sustainability Report within our Annual Report. Metcash has a low to moderate exposure to social risks. Our business and our people are driven by our purpose of ‘Championing successful independents’, and Metcash is proud to support independent retailers who are at the heart of local communities across Australia. At the core of our Purpose and Vision are our Values – we believe that independence is worth fighting for; in treating our people, retailers and suppliers the way we like to be treated; and in giving back to the communities where we live and work. We contribute to our local communities through the IGA Community Chest Program, disaster relief, and through our partnership with Foodbank. Metcash meets the threshold for reporting under the Modern Slavery Act 2018 (Cth) with our most recent statement available at modernslaveryregister.gov.au and our Anti-Slavery Policy is available on our website. Metcash is taking steps to continually improve its exposure to modern slavery risks in its supply chain. Further, under pending reforms to the Security of Critical Infrastructure Act 2018 (Cth), Metcash has been advised that it will be deemed a ‘critical food and grocery asset’, which will require it to implement certain measures to meet compliance with the Act. For further information on how we manage social risks please refer to the Sustainability Report within our Annual Report. Metcash Group Financial Report FY21 49 10 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Directors’ Report Directors’ Report For the year ended 30 April 2021 Work health and safety While a strong emphasis is placed on the implementation of work health and safety standards, the risk of injury or fatality remains possible. The occurrence of such events may have an adverse effect on the productivity, operations and reputation of Metcash. Metcash is focused on the safety of its staff and customers. The Group’s safety processes have been reviewed in light of COVID-19 and, where appropriate, additional processes and procedures have been implemented. People and culture risks The increasing competitive landscape and the ongoing need for market participants to remain agile in order to adapt to consumer preferences continues to place pressure on the competition for talent. The ability to attract and retain talent with the necessary skills and capabilities to operate in a challenging market whilst being able to effect transformation is critical to Metcash’s success. Metcash competes in labour markets to attract and retain its employees and management team. The competitive nature of these labour markets may result in the loss of key employees from time to time or make it difficult and costly to attract or retain employees. If Metcash is unable to attract and retain high calibre employees, this may adversely affect the Group’s operations and overall financial performance. Interruptions at Metcash’s workplaces arising from industrial disputes, work stoppages and accidents may result in production losses and delays. Renegotiation of collective agreements may increase Metcash’s operating costs and may involve disputes. Metcash is committed to being a favourite place to work by unlocking the potential of its people through empowerment and ensuring the Group’s cultural values align with their values. Integrity is the foundation of the ethical values and standards of behaviour set for all employees through the Group’s Code of Conduct. Metcash invests in its people through training and development opportunities, by promoting diversity and workplace flexibility and maintaining succession planning. The short and long-term incentive schemes align the Group’s remuneration structure to shareholders’ interests. End of the Operating and Financial Review 1 Metcash ceased to supply Drakes in South Australia from 30 September 2019. To enable comparison, sales in the comparative period have been adjusted accordingly, to exclude the impact of sales to Drakes. 2 The previous supply agreement with 7-Eleven concluded on 17 August 2020. To enable comparison, sales in the comparative period have been adjusted accordingly, to exclude the impact of sales to 7-Eleven. 3 Acquisitions include Total Tools Holdings (8 months) and 12 Total Tools JV stores (5 months), Finlaysons, Wilsons HTH and in FY20, G.Gay & Co, Keith Timber and Womersley’s. 4 Underlying profit after tax in FY21 excludes significant items: Total Tools Holdings acquisition costs and put option valuation adjustment of $6.1 million, Project Horizon implementation costs of $5.5 million, MFuture implementation and other costs of $2.1 million (all post tax). 5 FY20 Statutory loss after tax includes an impairment of goodwill and other assets of $237.4 million (post tax). 6 Cash realisation ratio = Cash flow from operations/underlying NPATDA (depreciation and amortisation not tax effected). 7 Based on scan data from 1,103 IGA stores. 8 EBIT margin: EBIT/Total revenue (including charge-through). 9 Based on scan data from 536 IBA stores. 10 Based on a sample of 234 network stores that provide scan data (represents >50% of sales). 11 The estimated net impact is after anticipated mitigating actions including revised trading terms with suppliers and cost reductions. 12 Excludes Total Tools sales. 50 Metcash Annual Report 2021 Metcash Group Financial Report FY21 11 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Directors’ Report Directors’ Report For the year ended 30 April 2021 BOARD INFORMATION The Directors in office during the financial year and up to the date of this report are as follows. ROBERT A MURRAY (MA Hons, Economics (Cantab)) Independent Non-executive Chair TONIANNE DWYER (B Juris (Hons), LB (Hons), GAICD) Independent Non-executive Director Robert (Rob) is the Chair of the Metcash Limited Board of Directors and is also the Chair of the Nomination Committee and a member of the People and Culture Committee. Rob was appointed to the Board on 29 April 2015 and was appointed Chair on 27 August 2015. Rob has extensive experience in FMCG. He has held positions with industry leaders, having been CEO of both Lion Nathan and Nestle Oceania, and he therefore brings with him a deep understanding of consumers and their requirements as well as the issues faced by those supplying the industry. As a former director of Dick Smith Holdings Limited (2014 to 2016), Super Retail Group Limited (2013 to 2015) and Linfox Logistics, Rob also has experience in the logistics, electronics, automotive, leisure and sports industries. Rob is currently a non-executive director of Southern Cross Media Group Limited (since 2014), Advisory Chairman of Hawkes Brewing Company (since August 2019) and is a board member of the not- for- profit charity, the Bestest Foundation. JEFFERY K ADAMS Management) Group Chief Executive Officer, Executive Director (BA, Business Administration and Jeffery (Jeff) has over 40 years of retail experience across domestic and international businesses in the United States, Europe, Asia, Central America and the Middle East, giving him an international perspective on the challenges and dynamics of the Australian retail market. He has extensive experience in the food and grocery industries, having worked for almost 20 years with UK retailer Tesco, and brings a strong track record in developing and executing growth strategies in difficult retail market conditions. Jeff was previously Chief Executive Officer of Tesco Kipa (Turkey). He also served as an Executive Vice President of Operations at Fresh & Easy Neighbourhood Market Inc. in the United States from 2008. Before moving to Fresh & Easy, Jeff served as the Chief Executive Officer of Tesco Lotus (Thailand) from 2004. Tonianne joined the Board on 24 June 2014. She is a member of the Audit, Risk and Compliance Committee and the Nomination Committee. Through her career and her experience on a number of boards, Tonianne brings to the Board a breadth of understanding of diverse industries. Tonianne enjoyed a successful 20-year career in the UK, investment banking and real estate. Since focussing on returning to Australia, she has continued her involvement with real estate, being a director of Dexus Property Group and Dexus Wholesale Property Fund (since 2011). This enables Tonianne to bring insight and perspective to Metcash’s property portfolio and risks. Tonianne is also a non-executive director of Incitec Pivot Limited (since May 2021), Oz Minerals Limited (since March 2017) and ALS Limited (since July 2016), and is a director of the Sir John Monash Foundation (since November 2020), as well as a director of Chief Executive Women and Deputy Chancellor of the University of Queensland (both since 2017). Tonianne is a former non-executive director of Queensland Treasury Corporation (February 2013 to June 2020). MURRAY P JORDAN (MPA and MAICD) Independent Non-executive Director since Murray has been a member of 23 February 2016. He is also a member of the Audit, Risk and Compliance Committee, the People and Culture Committee and the Nomination Committee. the Board Murray has extensive experience in the independent retail sector, bringing unique insight and perspective to the Board regarding the challenges faced by independent retailers and the valuable role they play in the community. Murray was previously Managing Director of New Zealand business Foodstuffs North Island Limited, a co-operative wholesale company, supplying independently owned and operated businesses the supermarkets, food service and liquor sectors. He has also held key management positions in property development and investment. in Murray is a non-executive director of Metlifecare Pty Limited, Asia Pacific Village Holdings Pty Limited and Asia Pacific Village Group Pty Limited (each since November 2020), Sky City Entertainment Group Limited (since December 2016), Stevenson Group Limited (since July 2016) and Chorus Limited (since September 2015), each a New Zealand company. He is also a trustee of the Starship Foundation in New Zealand that raises funds for the National Children’s Hospital, a trustee of the Foodstuffs member protection and co-operative perpetuation trusts (since January 2019), a trustee of the Southern Cross Health Trust (since August 2019) and a director of the Southern Cross Medical Care Society (since January 2020). Metcash Group Financial Report FY21 51 12 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Directors’ Report Directors’ Report For the year ended 30 April 2021 HELEN NASH (BA Hons, GAICD) Independent Non-executive Director CHRISTINE HOLMAN (MBA, PG Dip Mgt, GAICD) Independent Non-executive Director Helen was appointed to the Board on 23 October 2015. She is the Chair of the People and Culture Committee (since August 2019) and is also a member of the Nomination Committee. Christine was appointed to the Board on 14 September 2020 and is a member of the Audit, Risk and Compliance Committee and the Nomination Committee. Helen has more than 20 years executive experience across three diverse industries: consumer packaged goods, media and quick service restaurants. Helen brings rounded commercial and consumer focused experience to her role. She initially trained in the UK as a Certified Management Accountant. 18 years in brands and marketing allow her to bring a strong consumer lens to the Board. She gained extensive strategic, operational and general management experience in her role of Chief Operating Officer at McDonalds Australia, overseeing business and corporate strategy, store operations including all company and franchised stores, marketing, menus, research and development and information technology. Helen is a non-executive director of Southern Cross Media Group Limited (since April 2015) and Inghams Group Limited (since May 2017), and a former non-executive director of Blackmores Limited (2013 to 2019). PETER BIRTLES (BSc Hons, FCA, MAICD) Independent Non-executive Director Peter was appointed to the Board on 1 August 2019. He is Chair of the Audit, Risk and Compliance Committee (since July 2020) and a member of the Nomination Committee. Peter has over 30 years experience in retail and consumer goods industries, including 18 years with Super Retail Group Limited where he was Managing Director and Chief Executive Officer from 2006 to early 2019, and therefore brings a strong FMCG lens to his role. Peter's executive career also includes extensive experience in accounting and finance having previously held the position of Chief Financial Officer of Super Retail Group Limited, as well as other senior financial roles during his 12 years with The Boots Company in the UK and Australia. Peter is a non-executive director of Universal Store Holdings Limited (since October 2020) and GWA Group Limited (since 2010), and also a director of APG & Co Pty Limited and Apparel Group Pty Limited (both since July 2019), as well as Good360 Australia Ltd (since August 2019). Peter was formerly a director of Auto Guru Limited (2015 to 2019). Christine has more than 25 years of commercial experience across a broad range of areas including mergers and acquisitions, finance, sales, transformations and marketing. She has held Chief Financial Officer roles with Telstra Broadcast Services and Globecast Australia, as well as having extensive experience in private equity. technology, digital Christine is a non-executive director of Collins Foods Limited (since December 2019), Blackmores Limited (since March 2019) and CSR Limited (since October 2016). She is also a director of The McGrath Foundation (since July 2020), T20 Cricket World Cup (since January 2018), Moorebank Intermodal Company (since August 2019), The State Library of New South Wales Foundation (since February 2017) and The Bradman Foundation (since December 2016). Christine is a former non-executive director of Wisetech Global Limited (December 2018 to October 2019) and HT&E Limited (November 2015 to December 2018). COMPANY SECRETARY JULIE S HUTTON (B Asian Studies (Viet), LLB, LLM, GAICD) Julie was previously a partner at law firm Baker & McKenzie where she specialised in mergers & acquisitions, private equity and corporate restructures. Julie is a Graduate of the Australian Institute of Company Directors and was formerly a Non- executive Director of AVCAL, a national association which represents the private equity and venture capital industries in Australia. Indemnification and insurance of Directors and Officers Under the Constitution of the Company, the Company indemnifies (to the full extent permitted by law) current and former Directors and Company Secretaries and such other current and former officers as the Board may determine from time to time against all losses and liabilities incurred as an officer of Metcash or its related companies. The Company may enter into a deed indemnifying such officers on these terms. The Company enters into such deeds with each of its Directors and Company Secretaries from time to time. During the financial year, the Company has paid, or agreed to pay, a premium in respect of a contract of insurance insuring officers (and any persons who are officers in the future) against certain liabilities incurred in that capacity. Disclosure of the total amount of the premiums and the nature of the liabilities in respect of such insurance is prohibited by the contract of insurance. 52 Metcash Annual Report 2021 Metcash Group Financial Report FY21 13 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout UsDirectors’ Report Directors’ Report For the year ended 30 April 2021 The following table presents information relating to membership and attendance at meetings of the Company’s Board of Directors and Board committees held during the financial year. The information reflects those meetings held and attended during a Director’s period of appointment as a Director during the year. Appointed Meetings held Meetings attended Ordinary shares held at reporting date 84,005 547,858 60,000 57,441 40,000 51,189 30,000 Board of Directors Robert Murray (Chair)(a) Jeffery Adams Tonianne Dwyer Murray Jordan Peter Birtles Helen Nash Christine Holman Audit, Risk & Compliance Committee Peter Birtles (Chair) (b) Tonianne Dwyer Murray Jordan Christine Holman People & Culture Committee Helen Nash (Chair) (c) Murray Jordan Robert Murray Nomination Committee Robert Murray (Chair) Tonianne Dwyer Murray Jordan Peter Birtles Helen Nash Christine Holman 29 Apr 2015 5 Dec 2017 24 Jun 2014 23 Feb 2016 1 Aug 2019 23 Oct 2015 14 Sept 2020 1 Aug 2019 24 Jun 2014 23 Feb 2016 14 Sept 2020 23 Oct 2015 31 Aug 2016 27 Feb 2020 29 Apr 2015 24 Jun 2014 23 Feb 2016 1 Aug 2019 23 Oct 2015 14 Sept 2020 5 5 5 5 5 5 3 7 7 7 4 5 5 5 1 1 1 1 1 - 5 5 5 5 5 5 3 7 7 7 4 5 5 5 1 1 1 1 1 - (a) Mr Murray was appointed Chair of the Board on 27 August 2015. (b) Mr Birtles was appointed Chair of the Audit, Risk & Compliance Committee on 1 July 2020. (c) Ms Nash was appointed Chair of the People & Culture Committee on 1 July 2019. From time to time, additional Board committees or working groups are established, and meetings of those committees and working groups are held throughout the year, for example, to consider material transactions or material issues that may arise. The Board also holds regular calls with the Group CEO to stay abreast of current matters. In addition, the Board and Group Leadership Team held a strategy session over 2 days in October 2020. All Board members in office at that time attended the strategy session. These committee/working group meetings, update calls and strategy sessions are not included in the above table. Board and Committee meetings in FY21 occurred over 2 full days, with half a day allocated to Committee meetings and 1.5 days allocated to the Board meeting. In April 2021, the Board adopted a new approach, with Committee meetings generally being held one week in advance of the Board meeting, allowing half a day to now be allocated to a Board strategy session before the formal Board meeting, which is still run over 1.5 days. Metcash Group Financial Report FY21 53 14 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information For the year ended 30 April 2021 For the year ended 30 April 2021 Directors’ Report Directors’ Report Directors’ Report Remuneration Report Remuneration Report On behalf of the Board and the People and Culture On behalf of the Board and the People and Culture Committee, I am pleased to present our Remuneration Committee, I am pleased to present our Remuneration Report for the year ended 30 April 2021 Report for the year ended 30 April 2021 Helen Nash Helen Nash Chair, People and Culture Committee Chair, People and Culture Committee Our strong performance over the financial year could not have been Our strong performance over the financial year could not have been possible without the dedication and commitment of our people. We possible without the dedication and commitment of our people. We are proud of how our leaders, team members, retailers, suppliers and are proud of how our leaders, team members, retailers, suppliers and customers have responded to the evolving COVID-19 restrictions, customers have responded to the evolving COVID-19 restrictions, whilst managing an unprecedented level of demand across all our whilst managing an unprecedented level of demand across all our businesses. We are particularly proud of our frontline team members businesses. We are particularly proud of our frontline team members who have worked exceptionally hard to support our retailers and who have worked exceptionally hard to support our retailers and their communities during these challenging times. their communities during these challenging times. The health and wellbeing of our people was paramount in such a The health and wellbeing of our people was paramount in such a challenging year and we adapted readily to the dynamic and differing challenging year and we adapted readily to the dynamic and differing state health regulations. In response to the pandemic, we extended state health regulations. In response to the pandemic, we extended our flexible working arrangements, established a hardship fund to our flexible working arrangements, established a hardship fund to support team members who were forced to self-isolate for extended support team members who were forced to self-isolate for extended periods and actively supported mental wellbeing. I am also pleased periods and actively supported mental wellbeing. I am also pleased to say we continued to reward our people with pay increases, to say we continued to reward our people with pay increases, including applying Award increases at the customary time rather including applying Award increases at the customary time rather than to delayed timelines. We recognised our frontline Distribution than to delayed timelines. We recognised our frontline Distribution Centre team members’ contributions with additional payments via Centre team members’ contributions with additional payments via gift cards. gift cards. We did not access the Australian Government’s Job Keeper subsidy We did not access the Australian Government’s Job Keeper subsidy program. We did access the New Zealand Government wage subsidy program. We did access the New Zealand Government wage subsidy in the early phases of their lockdowns, but subsequently repaid this in the early phases of their lockdowns, but subsequently repaid this voluntarily. voluntarily. Our remuneration framework Our remuneration framework At Metcash we are passionate about ‘Championing successful At Metcash we are passionate about ‘Championing successful independents’, attracting, motivating and retaining key talent who independents’, attracting, motivating and retaining key talent who drive sustainable company performance while embodying our drive sustainable company performance while embodying our Purpose, Vision and Values. Our executive pay comprises Fixed Pay, Purpose, Vision and Values. Our executive pay comprises Fixed Pay, Incentive (‘LTI’) Short-Term Incentive (‘LTI’) Short-Term components and is designed to ensure that executives have a components and is designed to ensure that executives have a significant proportion of remuneration at risk, which is payable on significant proportion of remuneration at risk, which is payable on the delivery of positive outcomes for shareholders. No significant the delivery of positive outcomes for shareholders. No significant changes were made to our executive remuneration structure in FY21. changes were made to our executive remuneration structure in FY21. We undertake annually a detailed market benchmarking review of We undertake annually a detailed market benchmarking review of our director fees and executive pay, comparing fixed and variable our director fees and executive pay, comparing fixed and variable rewards, with data sourced through Aon Hewitt in their capacity as rewards, with data sourced through Aon Hewitt in their capacity as independent specialist remuneration data provider. Each an an independent specialist remuneration data provider. Each Metcash position is benchmarked against similar roles from our peer Metcash position is benchmarked against similar roles from our peer group, which includes 24 ASX listed organisations in a similar group, which includes 24 ASX listed organisations in a similar industry, both larger and smaller than Metcash, across measures of industry, both larger and smaller than Metcash, across measures of market capitalisation, revenue and assets. Our target position market capitalisation, revenue and assets. Our target position against our peer group is the 50th percentile, however our framework against our peer group is the 50th percentile, however our framework also enables us to reward deeply experienced high performing also enables us to reward deeply experienced high performing individuals. individuals. Incentive (‘STI’) and Long-Term Incentive (‘STI’) and Long-Term in shopper behaviour, in shopper behaviour, including rediscovering of including rediscovering of Our performance and outcomes Our performance and outcomes FY21 was a standout year for Metcash with record sales and FY21 was a standout year for Metcash with record sales and operating cashflow, and significant earnings growth. Our Pillars operating cashflow, and significant earnings growth. Our Pillars adapted quickly to the significant challenges associated with COVID- adapted quickly to the significant challenges associated with COVID- 19, while continuing to execute our MFuture plans to further improve 19, while continuing to execute our MFuture plans to further improve the competitiveness of our independent retail networks. While the the competitiveness of our independent retail networks. While the local shift local shift neighbourhood stores, was initially associated with the COVID-19 neighbourhood stores, was initially associated with the COVID-19 restrictions, management and our team members, led by KMP, have restrictions, management and our team members, led by KMP, have driven hard to ensure the success of MFuture and have underpinned driven hard to ensure the success of MFuture and have underpinned the retention of new and returning shoppers, as reflected in our the retention of new and returning shoppers, as reflected in our record sales performance for the year. record sales performance for the year. Group revenue (excluding charge-through sales) increased 9.9% to Group revenue (excluding charge-through sales) increased 9.9% to Including charge-through sales, Group revenue $14.3 billion. $14.3 billion. Including charge-through sales, Group revenue increased 10.1% to $16.4 billion with strong sales growth in all Pillars. increased 10.1% to $16.4 billion with strong sales growth in all Pillars. The uplift in sales, together with our strong focus on costs and the The uplift in sales, together with our strong focus on costs and the contribution of our very successful acquisitions, led to EBIT contribution of our very successful acquisitions, led to EBIT increasing a significant 19.9% to $401.4 million. Underlying profit increasing a significant 19.9% to $401.4 million. Underlying profit after tax increased 27.1% to $252.7 million, and was $239.0 million after tax increased 27.1% to $252.7 million, and was $239.0 million on a statutory basis. Underlying earnings per share increased 13.3% on a statutory basis. Underlying earnings per share increased 13.3% to 24.7 cents. Record operating cashflows of $475.5 million led to the to 24.7 cents. Record operating cashflows of $475.5 million led to the Company being in a net cash position of $124.6 million at year end. Company being in a net cash position of $124.6 million at year end. The Company announced capital management initiatives including The Company announced capital management initiatives including increasing the target dividend payout ratio from 60% to 70% of increasing the target dividend payout ratio from 60% to 70% of underlying profit after tax (commencing in FY21) and an Off-Market underlying profit after tax (commencing in FY21) and an Off-Market Buy-Back (‘Buy-Back’) of up to $175.0 million1. Total dividends for the Buy-Back (‘Buy-Back’) of up to $175.0 million1. Total dividends for the year increased 40% to 17.5 cents per share which, together with the year increased 40% to 17.5 cents per share which, together with the expected Share Buy-Back of ~$175.0 million, will result in ~$354.0 expected Share Buy-Back of ~$175.0 million, will result in ~$354.0 million2 being returned to shareholders. million2 being returned to shareholders. In addition to the standout financial performance, against very In addition to the standout financial performance, against very stretching targets, there was a significant improvement in the stretching targets, there was a significant improvement in the Company’s ‘Environmental, Social and Corporate Governance’ (ESG) Company’s ‘Environmental, Social and Corporate Governance’ (ESG) credentials as outlined in our Sustainability Report included in this credentials as outlined in our Sustainability Report included in this year’s Annual Report. year’s Annual Report. Last year the Board took several measures in response to the Last year the Board took several measures in response to the uncertainty associated with COVID-19. These included: uncertainty associated with COVID-19. These included:  Deferring scheduled remuneration increases for executive Key  Deferring scheduled remuneration increases for executive Key  Determining STI and LTI vesting outcomes based broadly on pre-  Determining STI and LTI vesting outcomes based broadly on pre- pandemic outcomes to avoid any undue benefit; pandemic outcomes to avoid any undue benefit;  Increasing the deferred component of the FY20 STI award; and  Increasing the deferred component of the FY20 STI award; and  Deferring scheduled Non-executive Director (‘NED’) fee increases.  Deferring scheduled Non-executive Director (‘NED’) fee increases. Management Personnel (‘KMP’); Management Personnel (‘KMP’); 1 Metcash may vary the size of the Buy-Back depending on a number of factors including shareholder demand, market conditions and future capital requirements. If Metcash increases the 1 Metcash may vary the size of the Buy-Back depending on a number of factors including shareholder demand, market conditions and future capital requirements. If Metcash increases the 2 Reflects a Buy-Back of ~$175.0 million and excludes any FY22 potential dividends. 2 Reflects a Buy-Back of ~$175.0 million and excludes any FY22 potential dividends. Buy-Back it will not buy back more shares than allowed within its 10% limit under the Corporations Act. Buy-Back it will not buy back more shares than allowed within its 10% limit under the Corporations Act. 54 Metcash Annual Report 2021 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 15 15 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Directors’ Report Directors’ Report For the year ended 30 April 2021 GROUP REVENUE $14.3 GROUP EBIT $401.4 UPAT $252.7 DIVIDENDS PER SHARE 17.5 billion 9.9% INCREASE FROM FY20 million 19.9% INCREASE FROM FY20 million 27.1% INCREASE FROM FY20 cents 40.0% INCREASE FROM FY20 TOTAL SHAREHOLDER RETURN SAFETY 55.6% FOR THE 12 MONTHS TO 30 APRIL 2021 +2.2% IMPROVEMENT IN TOTAL RECORDABLE INJURY GENDER EQUALITY EMPLOYER OF CHOICE AWARDED BY THE WORKPLACE GENDER EQUALITY AGENCY EMPLOYEE ENGAGEMENT +19% IMPROVEMENT IN SURVEY RESULTS FROM FY20 Once the performance of the Group stabilised, the previously approved increases to remuneration were applied and KMP STI deferral percentages reverted to standard policy. Our FY19 LTI vested at 90%, as we exceeded our underlying earnings per share CAGR target and exceeded our peer group index TSR by 6% per annum over the three years ended 30 April 2021. As part of the Aon Hewitt pay benchmarking review, some changes to KMP remuneration occurred in FY21. The Group CEO’s remuneration has remained unchanged since his appointment in 2017 and, whilst no increase was applied to his fixed pay, there was an increase to his STI and LTI opportunity to better align his pay mix to market practice and increase the ‘at risk’ component of his total remuneration. The change takes his total remuneration to within the range of the market peer group benchmark. In keeping with our competitive pay policy of recognising strong performance and deep experience, an increase was applied to the CEO Food’s remuneration package taking him to slightly below his position’s market peer group benchmark. Board fees remained below medians at between 81% and 99% of peer group benchmarks. Fees for the Chair of the Board remain within the good practice of between two-three times multiplier of a director fees. Fees were increased by 5% for FY21, with the increase for the Chair of the Board delayed until December 2020. Fee increases since 2012 have remained below the average increases over the same period in our peer group. For the first time since 2012, the Board will seek shareholder approval for an increase in the Board fees pool from $1.6 million to $2.0 million. This would allow for the appointment of a further director into the role that has remained vacant for some years. The proposed fee pool would be positioned at the average of the peer group of companies. STI outcomes are based on KMP exceeding their already-stretching pool and scorecard targets. The Board have scrutinised the quality of the results and are satisfied management actions have strongly supported the delivery of these exceptional results. This year’s STI payments, which ranged from 67% to 90% of maximum are therefore very appropriate. The Board also note that team members who participate in the broader STI scheme, sales incentive plans and other discretionary awards have been rewarded accordingly. As a result of the COVID-19-related uncertainty in the early months of the financial year, our FY21 LTI grant was postponed. As we did not issue the grant until after the Annual General Meeting (‘AGM’) in August 2020, the Group CEO’s FY21 LTI grant will be put to shareholders for approval alongside the FY22 LTI grant at this year’s AGM. Subject to shareholder approval, the same measures and timeline will apply to the Group CEO’s FY21 LTI grant as all other participants. I am very pleased to advise that Metcash has again been awarded an Employer of Choice citation by the Workplace Gender Equality Agency. This is recognition of our deep commitment to gender pay parity and gender equality in the workforce. This is the third consecutive year we have received this citation. Metcash was also awarded Gold level recognition under the Mental Health First Aider Skilled Workplace Program and was identified as a Flexready Certified organisation, which recognises leading employers who support flexible work practices. Additionally, we saw a 19% increase in our employee engagement results, which is particularly pleasing given the challenges of COVID-19. In summary, I believe our remuneration framework and outcomes for the year deliver a balanced and equitable outcome for all stakeholders. We have restructured our Report this year to make it more reader- friendly, without sacrificing our high level of disclosures. I trust you will find the Report informative. Helen Nash Chair, People and Culture Committee Metcash Group Financial Report FY21 55 16 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Directors’ Report Directors’ Report For the year ended 30 April 2021 CONTENTS OF REPORT Section 1. Section 2. Section 3. Section 4. Section 5. Section 6. Section 7. Section 8. Section 9. Overview of the Remuneration Report Remuneration governance Snapshot of executive remuneration policy Incentive plan operation Business Performance and At-Risk Remuneration Outcomes FY21 remuneration outcomes KMP service agreements Non-executive Director remuneration Statutory disclosures 56 57 58 59 63 64 68 68 70 1. OVERVIEW OF THE REMUNERATION REPORT The Directors present the Remuneration Report for the Company and its controlled entities (the ‘Group’) for the year ended 30 April 2021 (‘FY21’). This report forms part of the Directors’ Report and has been audited in accordance with section 308(3C) of the Corporations Act 2001 and Australian Accounting Standards. The report sets out the remuneration arrangements for the Group’s Key Management Personnel (KMP), comprising its Non-executive Directors (‘NED’), Group Chief Executive Officer (‘Group CEO’) and Group Executives of Metcash, who together have the authority and responsibility for planning, directing and controlling the activities of the Group. The KMP in FY21 are listed below. Name Position Non-executive Directors Robert Murray Peter Birtles Tonianne Dwyer Murray Jordan Helen Nash Christine Holman Chair Director Director Director Director Director Term as KMP in FY21 Full year Full year Full year Full year Full year Commenced 14 September 2020 Executive Director Jeff Adams Group Executives Alistair Bell Brad Soller Chris Baddock Scott Marshall Annette Welsh Group Chief Executive Officer (‘Group CEO’) Full year Group Chief Financial Officer (‘Group CFO’) Group Chief Financial Officer (‘Group CFO’) Chief Executive Officer, Australian Liquor Marketers (‘ALM’) Chief Executive Officer, Food Chief Executive Officer, Independent Hardware Group (‘IHG’) Commenced 7 December 2020 1 May 2020 to 7 December 2020 Full year Full year Full year For the remainder of this report, the Group CEO and Group Executives are referred to as KMP. 56 Metcash Annual Report 2021 Metcash Group Financial Report FY21 17 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout UsDirectors’ Report Directors’ Report For the year ended 30 April 2021 2. REMUNERATION GOVERNANCE The following diagram illustrates Metcash’s remuneration governance framework. BOARD The Board is responsible for overseeing and approving recommendations from the People and Culture Committee and Audit, Risk and Compliance Committee. The Board ultimately approves the remuneration outcomes for the Group CEO and other KMP. AUDIT, RISK AND COMPLIANCE COMMITTEE (‘ARCC’) The ARCC supports the P&CC by reviewing the Group’s financial results which form the basis for STI and LTI awards and providing advice relating to material risk and accounting issues that may affect the Board’s deliberations in determining STI and LTI award outcomes. PEOPLE AND CULTURE COMMITTEE (‘P&CC’) The P&CC is the key governing body in respect of remuneration matters. In addition to Non-executive Director and executive remuneration, the P&CC oversees major people programs such as culture and diversity and inclusion. The P&CC makes recommendations to the Board based on its review of proposals received from management. related ‑ MANAGEMENT Provides information relevant to people and remuneration decisions and makes recommendations to the P&CC. Undertakes work as directed by the P&CC including obtaining information from external advisers to assist the Committee with decision making. EXTERNAL ADVISERS The Committee may commission external advisers to provide information and/or recommendations on remuneration. If recommendations are sought in respect of KMP remuneration, interaction with external advisers is governed by protocol, which ensures the Committee can obtain independent advice. The Committee Chair appoints and engages directly with external advisers on KMP remuneration matters. Further, remuneration recommendations obtained from external advisers are used as a guide, rather than as a substitute for the Committee’s thorough consideration of the relevant matters. The Committee considers the recommendations, along with other relevant factors, in making remuneration decisions. Both the Committee and the Board are satisfied that the existing protocols ensure that remuneration recommendations obtained from external advisers are free from undue influence from the KMP to whom the remuneration recommendations apply. The People & Culture Committee engages and considers advice from independent remuneration consultants where appropriate in relation to remuneration matters and Non-executive Director fees. During the year, no remuneration recommendations as defined in section 9B of the Corporations Act 2001 were provided. Metcash Group Financial Report FY21 57 18 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Directors’ Report Directors’ Report For the year ended 30 April 2021 3. SNAPSHOT OF EXECUTIVE REMUNERATION POLICY Our Remuneration Principles Purpose, Vision & Values Market competitive Performance based Shareholder alignment Fair and simple Enabling our people to unleash their passion and give local Independents a fighting chance. Attracting and retaining people who can make a difference in ‘Championing successful independents’. Rewarding the individual contributions made to empowering our local Independents who turn postcodes into communities. Standing side by side with our local Independents through the generations, to sustain long-term value for shareholders. Making it easy to see how we recognise those who make their mark in our business. Our Remuneration Framework Fixed remuneration Short-Term Incentive Long-Term Incentive Salary, superannuation and salary sacrificed benefits. Fixed Remuneration is set at a level that is competitive in the market with reference to comparably sized peers. Fixed Remuneration is referred to as Total Employment Cost (‘TEC’). 12-month performance period. STI pool is distributed when threshold financial performance is met and scaled based on performance up to a prescribed maximum. Performance is then assessed against a scorecard of financial (60%) and strategic (40%) objectives and modified by a behavioural rating. 33% of the Group CEO and 25% of Other KMP’s vested awards will be deferred for 1 year into Performance Rights. 3-year performance period. Delivered in Performance Rights. Performance is assessed against Return on Funds Employed (ROFE) (50%) and Absolute Total Shareholder Return (TSR) (50%). KMP Target Remuneration KMP Target Reward comprises the three framework components above (Fixed or TEC in blue, STI in orange and LTI in grey) and is reviewed annually in line with the above principles. A review may result in no adjustment to Target Remuneration. KMP Total Reward J Adams A Bell S Marshall C Baddock A Welsh $- $1,000,000 $2,000,000 $3,000,000 $4,000,000 Relationship to Peer Group Benchmark Within Target Range Below Target Range Below Target Range Above Target Range Above Target Range 58 Metcash Annual Report 2021 Metcash Group Financial Report FY21 19 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Directors’ Report Directors’ Report For the year ended 30 April 2021 4. 4.1 INCENTIVE PLAN OPERATION ‘At-risk’ STI plan The ‘at-risk’ STI plan provides executives the opportunity to earn an incentive that is contingent upon performance against a combination of agreed financial and non-financial performance targets, which are set by the Board in consultation with the Group CEO at the start of each financial year. Feature Delivery Description Delivered in a combination of cash and deferred equity (33% for the Group CEO and 25% for other KMP). Deferred equity comprises performance rights that convert into fully paid ordinary shares in Metcash, which only become unrestricted at the end of the deferral period. Performance period 1 May each year to 30 April the following year. Eligibility The Group CEO and all other KMP participate in the STI plan. The Group CEO and Group CFO participate in the Group STI pool. The Pillar CEOs participate in their respective Pillar STI pools which are determined by a combination of their respective pillar EBIT and the consolidated Group EBIT. Performance Measures STI awards are paid out of the Group and Pillar STI pools. STI pools are only released for distribution when the threshold Group or Pillar underlying EBIT budget result, as applicable, is achieved. The STI pools are generally made available for distribution on the following basis: Achievement Distribution of STI pool Below threshold 95% of budget EBIT 0% - no pool is available for distribution Threshold 95% of budget EBIT Budget or ‘Target’ EBIT Over-achievement 105% of budget EBIT 50% of the respective STI pools 100% of the respective STI pools 150% of the respective STI pools Once an STI pool is released for distribution and scaled as noted above, a participant’s individual STI award is determined based on individual performance and behaviours. An individual’s overall performance rating is equally weighted between their scorecard results and Metcash behaviours. Individual performance and behavioural outcomes act as a multiplier against the pool reward by a factor of 0% to 150%. Individual results are also scaled so that the collective individual participants’ results are distributed in a manner consistent with a normal distribution curve and such that the aggregate STI payments across the pool do not exceed the STI pool amount. The STI Balanced Scorecard performance measures vary for each KMP based on the budgets and strategies for their respective pillars. Balanced Scorecard Financial & Value Creation Objectives (60%) Deliver Financial Results Measure Sales revenue1 UPAT EBIT ROFE Cash conversion Project Horizon Group Target Group Outcome Threshold $15.1 billion $211.8 million $349.2 million 24.5% 103.1% - 2.5% $16.4 billion - 5.0% $252.7 million - 5.0% $401.4 million - 50bps 28.6% 114.2% - 1000bps 95% of stretch targets 95% of stretch targets - 5.0% Target Budget Budget Budget Budget Budget Budget Stretch + 2.5% + 5.0% + 5.0% + 50bps + 1000bps + 5.0% Strategic Objectives (40%) Measure Our People Safety (TRIFR)2 Engagement Our Business Business metrics3 MFuture program Group Target Improvement of 5% on FY20 result Improvement of 5% on FY20 result 95% of stretch targets 95% of stretch targets 1 Sales revenue (including charge-through sales). 2 Total Recordable Injury Frequency 3 Examples of business metrics include Team Score (target = maintain FY20 result), Loyalty Programs (target = 12% uplift on FY20), Cost Management (target = achieve approved budget) and IBA Store Count (target =10% uplift on FY20 result). Metcash Group Financial Report FY21 59 20 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Directors’ Report Directors’ Report For the year ended 30 April 2021 Feature Description Behavioural ratings act to modify performance against scorecard objectives and can result in an increase for exceptional behaviour, a decrease for unacceptable behaviour or no change for successful behaviours in the overall performance rating. Our Metcash Behaviours are: Accountability Continuous Improvement Team Work Think Customer I am open and honest, accepting responsibility and delivering on promises. I act with integrity. I learn from success and failure and seek out a better way, and I collaborate with others to reach the best outcome. I am responsible for the strength and diversity of my team, and I own my development. I build a strong culture. I understand and anticipate my customer / retailer / supplier / shopper needs and drive innovation for mutual benefit. The maximum reward is only paid on achievement of ‘stretch’ outcomes, which include:  Maximum achievement against Group and/or pillar EBIT financial performance hurdles, as applicable (‘STI pool’)  Maximum achievement in overall individual performance results against all financial and all non- financial measures contained in the individual’s Balanced Scorecard; and An exceptional or successful rating against Metcash’s behaviours framework.  With the commencement of a major program of work, Project Horizon, scorecard performance measures for FY22 will include specific objectives in relation to its delivery. These will comprise quality and timing of the deliverables, cost of the program and value of the benefits realised. Challenging performance targets are set against each performance measure following a rigorous budget setting process that considers many factors including market conditions. This process includes draft budgets being initially prepared by leadership teams, followed by Pillar CEO and CFO reviews. Once these reviews are complete, including the Pillar CEO and CFO being confident in them, these draft budgets are thoroughly reviewed and challenged by the Group CEO and Group CFO. Following satisfaction at this level, each Pillar presents the draft budgets to the Board during a two-day process during which they are challenged on all matters to ensure the Board is comfortable that the budgets are sufficiently challenging and achievable. Target setting STI opportunities The STI opportunities as a percentage of TEC for KMP are outlined below: Position Group CEO Other KMPs Below threshold % of TEC Threshold % of TEC Target % of TEC Maximum % of TEC 0% 0% 17% 15% 68% 60% 153% 135% The Group CEO’s pay mix reflects peer group practice for Group CEOs and is therefore different to other KMP. Deferred vesting criteria The deferred performance rights are conditional and only vest if the executive remains employed by the Company up to and including 15 April of the year following the performance period. Shares are issued to participants by 25 April and are then restricted from trading until the annual results release which typically occurs in late June. Valuing deferred awards The number of performance rights issued to participants is calculated by dividing 33% (Group CEO) and 25% (other KMP) of the STI award dollar value by the volume weighted average price (VWAP) of Metcash ordinary shares over the 20 trading days prior to the end of the performance period which ends on 30 April. Board discretion The Board may exercise discretion to adjust the STI pool to more appropriately reflect the performance of the Group or a specific Pillar. The Board also retains discretion to adjust vesting outcomes in any circumstances to ensure they are appropriate. Clawback KMP STI awards are subject to clawback for cause or material misstatement of the Group’s financial statements. 60 Metcash Annual Report 2021 Metcash Group Financial Report FY21 21 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Directors’ Report Directors’ Report For the year ended 30 April 2021 4.2 At-risk’ LTI plan The Group’s LTIs are designed to enable Metcash to attract and retain key executives, whilst incentivising these executives to achieve challenging hurdles aligned to shareholder value. Feature Delivery Description Delivered in Performance Rights. Each Performance Right is a right to acquire Metcash shares at no cost, subject to the satisfaction of performance and service conditions. Performance period Three-year performance period. Eligibility The Group CEO and all other KMP participate in the LTI plan. Performance measures The Group had three active LTI plans operating in FY21. Current year LTI grant:  FY21-FY23 LTI – this grant was issued to KMP (excluding the Group CEO) during FY21 and is subject to two performance conditions: ROFE and TSR over a three-year period from 1 May 2020 to 30 April 2023. Prior period LTI grants:  FY20-FY22 LTI – this grant was issued to KMP during FY20 and is subject to two performance conditions: ROFE and TSR over a three-year period from 1 May 2019 to 30 April 2022.  FY19-FY21 LTI – this grant was issued to KMP during FY19 and is subject to two performance conditions: RTSR and UEPS CAGR over a three-year period from 1 May 2018 to 30 April 2021. FY20-FY22 and FY21-FY23 LTI grants ROFE ROFE is calculated as underlying EBIT divided by the average of funds employed at the beginning and end of the financial year. The overall ROFE result will be determined as the average of the individual ROFE result in respect of each of the three financial years over the performance period. TSR TSR is measured as the growth in share price over the performance period plus dividends paid to shareholders and assumes dividends are reinvested when they are paid. The opening and closing share prices used in the calculation are typically set with reference to the VWAP of Metcash shares over the 20 business days prior to the end of the Metcash financial year. The Board may exercise discretion to include other share capital transactions, including buybacks and otherwise adjust the calculation for capital transactions as deemed appropriate. The TSR result is expressed as a percentage and reported as the compound annual growth rate over the performance period. FY19-FY21 LTI grant Relative Total Shareholder Returns (‘RTSR’) RTSR is measured against a group of selected peers, being consumer staples companies in the ASX 300 as at the beginning of the LTI plan period on 1 May. The TSR of those peer companies is multiplied against an index weighting. The sum of the weighted TSRs (‘Index TSR’) is the score against which Metcash’s TSR is compared. Metcash Underlying Earnings per Share Compound Annual Growth Rate (‘UEPS CAGR’) UEPS CAGR is calculated over the three-year performance period of the LTI against the base year UEPS at grant date. Metcash Group Financial Report FY21 61 22 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Directors’ Report Directors’ Report For the year ended 30 April 2021 Feature Vesting hurdles Description FY20-FY22 and FY21-FY23 LTI grants The FY20-FY22 and FY21-FY23 LTI grants operate under the same terms. ROFE The rights vest against the ROFE hurdle as follows: ROFE vesting scale Threshold Target Stretch Equal to or above maximum Vesting % 25% 50% 75% 100% Vesting occurs on a straight-line basis between each hurdle, with nil vesting below threshold. Full vesting will only occur if Metcash achieves a ROFE of greater than 26% over the performance period. TSR The rights vest against the TSR hurdle as follows: TSR vesting scale Threshold Target Stretch Equal to or above maximum Vesting % 25% 50% 75% 100% Vesting occurs on a straight-line basis between each hurdle, with nil vesting below threshold. Full vesting will only occur if Metcash achieves a TSR CAGR of 10% or higher over the performance period. The opening VWAP in relation to the FY20-FY22 LTI was $2.71 per share (VWAP to 30 April 2019) and the FY21-FY23 LTI was $2.58 per share (pre-COVID-19 VWAP to 16 March 2020). FY19-FY21 LTI grant RTSR The rights vest against the RTSR hurdle as follows: RTSR vesting scale Less than Index TSR Equal to Index TSR Between Index TSR and Index TSR + 10% Index TSR + 10% or above Vesting % 0% 50% Straight-line pro-rata 100% Full vesting will only occur if Metcash’s RTSR is 10% or higher than the peer companies over the performance period. The opening VWAP in relation to the FY19-FY21 LTI was $3.26 per share. UEPS CAGR The rights vest against the UEPS CAGR hurdle as follows: UEPS CAGR vesting scale Base year UEPS (cents per share) Threshold Target Stretch Equal to or above maximum UEPS CAGR 20.8 +1% +2% +3% +4% Vesting % 25% 50% 75% 100% Vesting occurs on a straight-line basis between each hurdle, with nil vesting below threshold. Full vesting only occurs if Metcash achieves an UEPS CAGR of greater than 4% over the performance period. The FY18 base year UEPS was restated to 20.8 cents per share to reflect the application of the AASB 16 Leases accounting standard so that it is consistent with the current accounting policy. Board discretion The LTI is subject to the Board’s absolute discretion at all times. Clawback KMP LTI awards are subject to clawback for cause or material misstatement of the Group’s financial statements. 62 Metcash Annual Report 2021 Metcash Group Financial Report FY21 23 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Directors’ Report Directors’ Report For the year ended 30 April 2021 5. BUSINESS PERFORMANCE AND AT-RISK REMUNERATION OUTCOMES The charts below show Metcash’s financial performance and percentage of maximum STI paid to KMP in the five-year period ended 30 April 2021. Earnings per Share Share Price 35 15 (5) (25) 100% 4.00 80% 60% 40% 20% 3.00 2.00 1.00 0% - FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21 Underlying EPS (cps) Statutory EPS (cps) % Maximum STI paid Closing Share Price ($) % Maximum STI paid Net Profit Return on Funds Employed (ROFE)1 300 200 100 - (100) (200) 100% 40.0% 80% 60% 40% 20% 30.0% 20.0% 10.0% 0% 0.0% 100% 80% 60% 40% 20% 0% 100% 80% 60% 40% 20% 0% FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21 Underlying NPAT ($m) Statutory NPAT ($m) % Maximum STI paid ROFE (%) % Maximum STI paid 1. ROFE is calculated based on average of opening and closing funds employed and based on underlying EBIT. Other Group performance metrics over the last five years were as follows: Financial year Revenue ($b) Cash realisation ratio (%) Dividends declared per share (cents) Average STI payments to KMP as a % of maximum FY17 12.3 118% 4.5 36.0% FY18 12.4 101% 13.0 47.0% FY19 12.7 92% 13.5 FY20 13.0 33% 12.5 57.5% 43.0% FY21 14.3 114% 17.5 84.1% In FY21, the Group and the pillars have performed exceptionally well, delivering EBIT results against already stretching targets at a 19.9% increase on FY20 outcomes in extremely challenging circumstances. Accordingly, the STI outcomes awarded to KMP ranged from 67% to 90% of maximum. In FY20, whilst the Group and the Food pillar delivered strong EBIT results, the Board exercised its discretion to reduce the overall STI award to the ‘on target’ level. The Liquor pillar was determined to have performed ‘on target’ and the Hardware pillar ‘below target’. In FY19, the Group delivered EBIT results that were marginally above target level. The Food and Hardware pillars performed marginally above target level and the Liquor pillar performed at target. In FY18, Hardware and Corporate delivered EBIT results at or above the maximum hurdle. The Liquor pillar performed at target level and the Food pillar performed between threshold and target. In FY17, the Food pillar performed below threshold level, the Liquor pillar performed at target level and the Hardware pillar delivered earnings in excess of target. Metcash Group Financial Report FY21 63 24 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Directors’ Report Directors’ Report For the year ended 30 April 2021 6. FY21 REMUNERATION OUTCOMES Actual FY21 KMP remuneration The table below reflects actual cash payments made or due to KMP in respect of performance during FY21. The table does not comply with IFRS requirements. The required statutory disclosures are shown in section 9 of this report: KMP J Adams A Bell4 B Soller (retired)5 C Baddock S Marshall A Welsh Total employment cost $ FY21 STI cash 1 $ FY20 STI deferred 2 $ LTI 3 $ 1,800,000 1,612,774 600,000 1,239,017 298,755 562,007 700,000 970,834 700,000 259,923 379,354 607,163 864,547 640,238 - 214,200 168,000 214,200 28,643 - 614,343 - 614,343 136,129 Total $ 5,251,791 558,678 1,769,904 1,475,163 2,663,924 1,505,010 1. Represents the cash component of the FY21 STI reward amount of 67% (Group CEO) and 75% (other KMP) payable in cash in July 2021. The deferred equity component of the FY21 STI reward of 33% (Group CEO) and 25% (other KMP), is not presented above because the reward is conditional upon the executive being employed by the Company on 15 April 2022. Shares are issued to participants by 25 April 2022 and are then restricted from trading until the close of 28 June 2022. 2. Represents the deferred equity component of the FY20 STI reward of 50% (Group CEO) and 40% (other KMP) which were deferred as equity. The KMPs have subsequently met the continuity of employment service condition. Accordingly, the performance rights have vested and the shares were issued to the KMPs in April 2021. The shares are restricted from trading until the close of 28 June 2021. The amounts presented above are based on the number of rights vested multiplied by the VWAP of Metcash shares over the 20 business days ending 16 March 2020 of $2.58 per share. 3. The FY19-FY21 LTI will partially vest during FY21 at 90%, subject only to the KMP remaining in employment until 15 August 2021. The amounts presented above are based on the number of rights that will vest multiplied by the VWAP of Metcash shares over the 20 business days until 30 April 2021 of $3.74 per share. 4. Mr Bell commenced employment on 1 September 2020 and was appointed as Group CFO on 7 December 2020, with a fixed remuneration of $750,000. The amounts disclosed above reflect Mr Bell’s total fixed remuneration and actual STI award for the period from 7 December 2020 to 30 April 2021 as KMP. In addition, Mr Bell received total fixed remuneration of $201,245 and FY21 STI cash award of $175,086 as non-KMP relating to the period from 1 September 2020 to 7 December 2020. 5. Mr Soller retired as Group CFO on 7 December 2020 and will cease employment on 31 December 2021. The amounts disclosed above reflect Mr Soller’s total fixed remuneration and actual STI and LTI award for the period from 1 May 2020 to 7 December 2020 as KMP. Mr Soller’s fixed remuneration was increased to $928,200 with effect from 1 May 2020, in accordance with the customary annual review. In addition, Mr Soller received total actual FY21 remuneration of $613,374 as non-KMP relating to the period from 8 December 2020 to 30 April 2021. In line with Metcash’s good leavers policy, Mr Soller retained (on a pro-rata basis) 175,946 and 115,542 of his FY20-FY22 and FY21-FY23 LTI performance rights, respectively, which will be tested in accordance with existing performance conditions. FY21 STI outcomes Metcash’s performance in FY21 exceeded expectations. This was driven by the exceptional performance of our executive team. Performance against each financial STI measure comfortably exceeded ‘stretch’ targets, allowing each STI Pool to be funded to its maximum level. As outlined on the following page, these financial results combined with KMP exceeding expectations against their individual objectives, resulted in overall STI outcomes ranging from 67%-90% of maximum. The Board views these FY21 STI outcomes as an appropriate recognition of the KMP’s performance. This outcome also recognises that FY21 performance was reflected in strong outcomes for shareholders, customers and the broader workforce (who were also eligible for maximum bonus payments in FY21). Metcash invited KPMG to provide an independent view on the reasonableness of the STI outcomes. KPMG concluded Metcash’s FY21 STI scorecard outcomes appear reasonable in the context of the Company’s: • Financial position (strong balance sheet, FY21 performance exceeded stretch targets against all key financial metrics, no Job Keeper assistance utilised, all assistance from NZ COVID-19 wage subsidy repaid); • Shareholder outcomes (shareholder returns have been strong, and dividends have increased); and • Workforce outcomes (pay increases occurred as normal throughout the organisation, bonuses and other incentives commensurate to performance outcomes are to be paid for team members, employee engagement scores improved, and no major redundancies occurred during the year). 64 Metcash Annual Report 2021 Metcash Group Financial Report FY21 25 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Directors’ Report Directors’ Report For the year ended 30 April 2021 The FY21 STI outcomes against each of the KMPs Balanced Scorecards are summarised below: Balanced Scorecard Outcomes J Adams Group CEO A Bell Group CFO C Baddock CEO ALM S Marshall CEO Food A Welsh CEO IHG Financial & Value Creation Objectives (60%) Sales revenue1 UPAT EBIT ROFE Cash Conversion Working Capital Project Horizon Implementation Planning Stretch Stretch Stretch Stretch Stretch N/A On target Stretch Stretch Stretch Stretch Stretch N/A On target Stretch N/A Stretch Stretch N/A On target On target Stretch N/A Stretch Stretch N/A Above target On target Stretch N/A Stretch Stretch N/A On target On target Strategic Objectives (40%) Our People Strong & Positive Culture Safety Our Business Improve Pillar Metrics MFuture program Finance costs (net) Cost centre management Behaviours Overall rating Stretch Below target Stretch Below target Stretch Below target Stretch Below target Above Target Stretch On target Above target N/A N/A N/A N/A Above target On target On target Above target N/A N/A On target Above target N/A N/A Above target Stretch N/A N/A Strong Strong Strong Strong Strong Stretch Stretch Stretch Stretch Stretch STI % of maximum awarded 87% 86% 86% 88% 90% 1. Sales revenue (including charge-through sales). The table below reflects the KMP’s FY21 STI outcomes when compared against target and maximum potential STI: KMP J Adams A Bell3 B Soller (retired)4 C Baddock S Marshall A Welsh Target potential STI $ Maximum potential STI $ STI awarded % of maximum STI cash1 $ STI deferred2 $ Total STI awarded $ Maximum STI forfeited $ 1,225,000 180,149 337,204 420,000 584,400 420,000 2,756,250 405,335 758,709 945,000 1,314,900 945,000 87.3% 85.5% 66.7% 85.7% 87.7% 90.3% 1,612,774 259,923 379,354 607,163 864,547 640,238 794,351 86,640 126,451 202,388 288,182 213,413 2,407,125 346,563 505,805 809,551 1,152,729 853,651 349,125 58,772 252,904 135,449 162,171 91,349 1 The cash component of the FY21 STI reward of 67% (Group CEO) and 75% (other KMP) is payable in cash in July 2021. 2 The deferred equity component of the FY21 STI reward of 33% (Group CEO) and 25% (other KMP) is deferred and released through the issue of Metcash performance rights, conditional upon the executive being employed by the Company on 15 April 2022. Shares are issued to participants by 25 April 2022 and are then restricted from trading until the close of 28 June 2022. 3 Mr Bell commenced employment on 1 September 2020 and was appointed as Group CFO on 7 December 2020, with a fixed remuneration of $750,000. The amounts disclosed above reflect Mr Bell’s STI award for the period from 7 December 2020 to 30 April 2021 as KMP. In addition, Mr Bell received an STI award of $233,448 as non-KMP relating to the period from 1 May 2020 to 7 December 2020. 4 Mr Soller retired as Group CFO on 7 December 2020 and will cease employment on 31 December 2021. The amounts disclosed above reflect Mr Soller’s STI award for the period from 1 May 2020 to 7 December 2020 as KMP. In addition, Mr Soller received an STI award of $329,574 as non-KMP relating to the period from 8 December 2020 to 30 April 2021. Metcash Group Financial Report FY21 65 26 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Directors’ Report Directors’ Report For the year ended 30 April 2021 FY20 STI deferred equity component outcomes In FY20, the Group’s ‘at risk’ STI plan introduced a deferred equity component so that the majority of the KMP’s performance pay is delivered in equity. The following table presents the vesting of the FY20 STI deferred equity component, following completion of the employment service condition on 15 April 2021: Participant J Adams B Soller (retired) C Baddock S Marshall A Welsh Vesting date 15 April 2021 15 April 2021 15 April 2021 15 April 2021 15 April 2021 No. of rights held No. of rights vested No. of rights forfeited 232,558 83,023 65,116 83,023 11,102 232,558 83,023 65,116 83,023 11,102 - - - - - The number of performance rights were calculated by dividing 50% (Group CEO) and 40% (other KMP) of the FY20 STI award dollar value by the VWAP of Metcash ordinary shares over the 20 trading days ending 16 March 2020 of $2.58 per share. The FY20 STI deferred equity component subsequently vested on 15 April 2021 following the KMPs completion of the service condition. These performance rights have now been released as shares and are restricted for trading until the close of 28 June 2021. Long-term incentives Details of LTI grants made to KMP during the financial year The following FY21-FY23 LTI grant was made to KMP during FY21: Participant Grant date Hurdle Vesting date No. of rights Fair value per right $ Grant entitlement (% of TEC)1 J Adams2 A Bell3 - 11 December 2020 B Soller (retired)4 11 December 2020 C Baddock 11 December 2020 S Marshall 11 December 2020 A Welsh 11 December 2020 - ROFE TSR ROFE TSR ROFE TSR ROFE TSR ROFE TSR - 15 August 2023 15 August 2023 15 August 2023 15 August 2023 15 August 2023 15 August 2023 15 August 2023 15 August 2023 15 August 2023 15 August 2023 - 77,510 77,510 103,779 103,779 81,395 81,395 103,779 103,779 81,395 81,395 - 3.10 2.15 3.10 2.15 3.10 2.15 3.10 2.15 3.10 2.15 - 60% 60% 60% 60% 60% 1. The grant entitlement is expressed as a percentage of the face value of performance rights divided by the participants’ annual TEC at grant date. 2. As a result of the COVID-19-related uncertainty in the early months of the financial year, Mr Adams’ FY21-FY23 LTI grant was not put forward to shareholders for approval at the 2020 AGM. Mr Adams’ FY21-FY23 LTI grant will be put to shareholders for approval at the 2021 AGM. Subject to shareholder approval, the same measures and timeline will apply to Mr Adams’ FY21 LTI grant as all other participants. In accordance with AASB 2 Share-based payments, the fair value of the share- based payment is to be determined at grant date (i.e., 2021 AGM date). For the purposes of this report, Mr. Adams’ LTI expense for his services rendered during FY21 has been based on an estimate of the fair value of the performance rights. 3. Mr Bell was appointed Group CFO on 7 December 2020. 4. Mr Soller retired as Group CFO on 7 December 2020 and will cease employment on 31 December 2021. In FY21, Mr Soller was issued 207,558 performance rights in relation to the FY21-FY23 LTI grant. Mr Soller retained (on a pro-rata basis) 115,542 FY21-FY23 LTI performance rights, which remain on foot subject to existing performance hurdles and timeframes. The number of performance rights retained was determined on a pro-rata basis up to the date of cessation of employment. The balance of 92,016 performance rights were forfeited. 66 Metcash Annual Report 2021 Metcash Group Financial Report FY21 27 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Directors’ Report Directors’ Report For the year ended 30 April 2021 FY19-FY21 LTI grant The plan is expected to partially vest on 15 August 2021 at 90%, subject only to the active participants remaining in employment until 15 August 2021. The FY19-FY21 LTI grant vesting results are set out below: Performance condition UEPS CAGR Weighting 50% RTSR 50% Performance result UEPS CAGR performance over the three-year plan period was 5.2% Vesting result (%) 100% RTSR performance over the three-year plan period was 6.0% above Index TSR 80% The vesting of the FY19-FY21 LTI rights will be as follows: Participant J Adams B Soller S Marshall A Welsh FY20-FY22 LTI grant Hurdle UEPS CAGR RTSR UEPS CAGR RTSR UEPS CAGR RTSR UEPS CAGR RTSR No. of rights held No. of rights expected to vest No. of rights expected to be forfeited 184,049 184,049 91,257 91,257 91,257 91,257 20,221 20,221 184,049 147,239 91,257 73,006 91,257 73,006 20,221 16,177 - 36,810 - 18,251 - 18,251 - 4,044 The ATSR component is currently performing at the maximum level on the vesting scale. This interim performance assessment is based on a VWAP of $3.74 per share, measured across the 20 business days to 30 April 2021. In FY21, the Group provided for the ROFE component based on the maximum level of performance. FY21-FY23 LTI grant The ATSR component is currently performing at the maximum level on the vesting scale. This interim performance assessment is based on a VWAP of $3.74 per share, measured across the 20 business days to 30 April 2021. In FY21, the Group provided for the ROFE component based on the maximum level of performance. Remuneration mix The chart below outlines the FY21 remuneration mix for KMP at the end of the year including the deferral of the 33% (Group CEO) and 25% (other KMP) of STI ‘at risk’ equity component. Each remuneration component is shown as a percentage of total remuneration measured at Target and at Maximum earnings opportunity. LTI values have been measured at grant date, based on the face value of incentives granted in FY21. The KMP remuneration weighting as a percentage of TEC during FY21 was as follows: Metcash Group Financial Report FY21 67 28 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Directors’ Report Directors’ Report For the year ended 30 April 2021 7. KMP SERVICE AGREEMENTS Name Agreement term Executive notice Metcash notice Redundancy J Adams1 A Bell C Baddock S Marshall A Welsh Four years (based on current 482 visa limitations)1 Ongoing unless notice given Ongoing unless notice given Ongoing unless notice given Ongoing unless notice given 12 months 12 months 12 months 12 months 12 months 12 months 12 months 12 months 12 months 12 months 12 months 12 months 12 months 12 months 12 months 1. Mr Adams’ visa was renewed in February 2021 and was granted for a further four years. In the event of cessation of employment, a KMP’s unvested performance rights will ordinarily lapse, however, this is subject to Board discretion which may be exercised in circumstances such as death, disability, retirement, redundancy or special circumstances. In some circumstances on termination of employment, the Group may require individuals to enter into non-compete arrangements with the Group. These arrangements may require a payment to the individual. Minimum shareholding guidelines Minimum shareholding guidelines have been implemented for all KMP commencing as of the effective date specified below or upon the date of appointment as KMP, whichever occurs later. Position Group CEO Other KMP Value Time to achieve Effective date 1 x TEC 0.5 x TEC 5 years 5 years 1 May 2018 1 May 2019 8. NON-EXECUTIVE DIRECTOR REMUNERATION Remuneration policy The objectives of Metcash’s policy regarding Non-executive Director fees are:  To preserve the independence of Non-executive Directors by not including any performance-related element; and  To be market competitive with regard to Non-executive Director fees in comparable ASX-listed companies and to the time and professional commitment in discharging the responsibilities of the role. All Non-executive Directors are paid a fixed annual fee. In addition, Committee fees are paid to recognise the additional responsibilities associated with participating on a Board Committee. The fixed fee to the Board Chair is to remunerate the Chair for all responsibilities, including participating on any Board Committees. To align individual interests with shareholders’ interests, Non-executive Directors are encouraged to hold Metcash shares. Non-executive Directors fund their own share purchases and must comply with Metcash’s share trading policy. Aggregate fee limit Non-executive Director fees are limited to a maximum aggregate amount approved by shareholders. The Board intends to propose an increase in the fee limit to $2,000,000 for approval by shareholders at the 2021 AGM. The proposed increase reflects an update on the existing limit of $1,600,000 which was approved in 2012. As a reasonableness test, this pool increase was assessed against comparison data provided by Aon Hewitt which indicated that the peer group average pool limit was $2,000,000. Additionally, consideration was given to ‘fair fee’ criteria including the pool being no greater than two times total NED annual fees. The Metcash fee limit of $2,000,000 sits within that criterion. Minimum shareholding guidelines Minimum shareholding guidelines have been implemented for all Non-executive Directors of one year’s base fees to be accumulated in five years from the effective date of 1 May 2019 or upon their date of appointment as a Non-executive Director, whichever occurs later. 68 Metcash Annual Report 2021 Metcash Group Financial Report FY21 29 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Directors’ Report Directors’ Report For the year ended 30 April 2021 Non-executive Director fee structure Consistent with all executive remuneration practices in Metcash, extensive annual independent data benchmarking is undertaken on Board fees. Averaged over the last eight years, the Board fees have increased by 2.25% per annum and this results in Metcash sitting below the market benchmark of our peer group. An increase in fees to close the gap was made in FY21 which moves the position to between 81% and 99% of the market benchmark. Board Chair Non-executive Director Committee Audit, Risk & Compliance Chair Member People & Culture Chair Member Nomination Chair Member FY21 $1,2 451,474 153,007 36,558 16,444 36,558 16,444 - - 1. Per annum fees as at the end of the financial year, including superannuation. 2. The increase in per annum fees was effective 1 May 2020 except for the Chairman of the Board which was effective 1 December 2020. The Non-executive Directors did not receive a fee increase in FY20. Non-executive Director remuneration Name R Murray P Birtles T Dwyer M Jordan H Nash C Holman1 W Tang (resigned) A Brennan (resigned) F Balfour (retired) Total Financial year Fees $ Superannuation $ FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 417,352 409,051 170,057 110,536 160,873 164,875 169,767 161,683 181,211 168,638 90,271 - - 85,972 - 49,127 - 54,958 1,189,531 1,204,840 21,581 20,924 16,155 10,501 15,283 15,663 16,128 15,360 8,354 10,304 8,576 - - 8,167 - 4,667 - 5,221 86,077 90,807 1. Ms Holman was appointed a Non-executive Director on 14 September 2020. Metcash Group Financial Report FY21 FY20 $1 429,975 145,721 34,817 15,661 34,817 15,661 - - Total $ 438,933 429,975 186,212 121,037 176,156 180,538 185,895 177,043 189,565 178,942 98,847 - - 94,139 - 53,794 - 60,179 1,275,608 1,295,647 69 30 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Directors’ Report Directors’ Report For the year ended 30 April 2021 Non-executive Director shareholdings Name Directors R Murray P Birtles T Dwyer M Jordan H Nash C Holman1 Balance at 1 May 2020 Acquired during the year Balance at 30 April 2021 Balance at report date 84,005 40,000 60,000 42,651 37,431 - 264,087 - - - 14,790 13,758 30,000 58,548 84,005 40,000 60,000 57,441 51,189 30,000 322,635 84,005 40,000 60,000 57,441 51,189 30,000 322,635 1. Ms Holman was appointed a Non-executive Director on 14 September 2020. 9. STATUTORY DISCLOSURES Fixed and at-risk remuneration KMP J Adams A Bell5 B Soller (retired)6 C Baddock S Marshall A Welsh M Laidlaw (retired)7 Total Total Year FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 FY21 FY20 Fixed remuneration $ STI cash1 $ STI deferred 2, 3 $ Super- annuation $ LTI (share-based payments) $ Leave4 $ Performance - related % Total $ 1,800,000 1,800,000 290,113 - 548,940 871,575 678,419 548,421 949,253 871,575 678,419 158,083 - 729,075 4,945,144 4,978,729 1,612,774 600,000 259,923 - 379,354 321,300 607,163 252,000 864,547 321,300 640,238 42,964 - 360,000 4,363,999 1,897,564 697,176 300,000 43,320 - 170,326 107,100 185,194 699,492 251,191 107,100 130,360 4,990 - - 1,477,567 1,218,682 - - 8,642 - 13,067 20,925 21,581 17,503 21,581 20,925 21,581 5,251 - 20,925 86,452 85,529 69,099 90,464 35,208 - 167,528 69,178 (8,106) 43,253 29,275 15,347 22,340 66,470 - 18,855 315,344 303,567 1,385,992 373,174 47,614 - 502,350 146,547 280,130 28,880 570,642 133,212 212,481 6,652 - 152,199 5,565,041 3,163,638 684,820 - 1,781,565 1,536,625 1,764,381 1,589,549 2,686,489 1,469,459 1,705,419 284,410 - 1,281,054 2,999,209 14,187,715 9,324,735 840,664 66.4% 40.2% 51.2% - 59.1% 37.4% 60.8% 61.7% 62.8% 38.2% 57.6% 19.2% - 40.0% 62.3% 42.4% 1. The cash component of the FY21 STI reward of 67% (Group CEO) and 75% (other KMP) is payable in cash in July 2021. The cash component of the FY20 STI reward of 50% (Group CEO) and 60% (other KMP) was paid in cash in July 2020. 2. The deferred equity component of the FY21 STI reward of 33% (Group CEO) and 25% (other KMP) is deferred and released through the issue of Metcash performance rights, conditional upon the executive being employed by the Company on 15 April 2022. Shares are issued to participants by 25 April 2022 and are then restricted from trading until the close of 28 June 2022. The fair value of the deferred share component is amortised over the two-year performance period. 3. The deferred equity component of the FY20 STI reward of 50% (Group CEO) and 40% (other KMP) vested during the year. Shares were issued to participants in April 2021 and are restricted from trading until the close of 28 June 2021. The fair value of the deferred share component is amortised over the two-year performance period. Mr Baddock’s FY20 STI deferred included a buy-out grant awarded to him upon commencement of his employment and appointment as CEO ALM. 4. Includes changes in annual and long service leave entitlements. 5. Mr Bell commenced employment on 1 September 2020 and was appointed as Group CFO on 7 December 2020, with fixed remuneration of $750,000. The amounts disclosed above reflect Mr Bell’s remuneration for the period from 7 December 2020 to 30 April 2021 as KMP. In addition, Mr Bell received total remuneration of $478,586 as non-KMP relating to the period from 1 September 2020 to 7 December 2020. 6. Mr Soller retired as Group CFO on 7 December 2020 and will cease employment on 31 December 2021. The amounts disclosed above reflect Mr Soller’s remuneration relating to the period from 1 May 2020 to 7 December 2020 as KMP. In addition, Mr Soller received (a) total remuneration of $861,165 as non-KMP relating to the period from 8 December 2020 to 30 April 2021 and (b) is expected to receive total remuneration of $1,028,722 as non-KMP relating to the period 1 May 2021 to 31 December 2021. The terms of Mr Soller’s employment prohibits him from accepting employment at a competitor company for six months following his cessation of employment on 31 December 2021. In line with Metcash’s good leavers policy, Mr Soller retained 175,946 and 115,542 of his FY20-FY22 and FY21-FY23 LTI performance rights, respectively, which will be tested in accordance with existing performance conditions. 7. Mr Laidlaw retired as CEO IHG on 30 April 2020. 70 Metcash Annual Report 2021 Metcash Group Financial Report FY21 31 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Directors’ Report Directors’ Report For the year ended 30 April 2021 KMP performance rights holdings Name J Adams A Bell2 B Soller (retired) 3 C Baddock S Marshall A Welsh Total Balance at 1 May 2020 Granted Vested/ Exercised1 1,278,706 - 567,338 154,982 539,806 121,480 2,662,312 232,558 155,020 290,581 227,906 290,581 173,892 1,370,538 (547,858) - (209,213) (65,116) (190,656) (39,606) (1,052,449) Forfeited (152,504) - (174,704) - (52,059) (13,786) (393,053) Balance at 30 April 2021 Balance at report date 810,902 155,020 474,002 317,772 587,672 241,980 2,587,348 810,902 155,020 474,002 317,772 587,672 241,980 2,587,348 1 As foreshadowed in the FY20 financial report, a total of 577,627 performance rights from the FY18-FY20 LTI plan partially vested on 15 August 2020. The vested shares were acquired on market and allocated to the participants on 15 August 2020. In addition, a total of 474,822 performance rights were granted to the KMPs and have then subsequently vested in relation to the deferred component of the FY20 STI plan. 2 Mr Bell commenced employment on 1 September 2020 and was appointed as Group CFO on 7 December 2020. 3 As set out in section 6, 164,263 performance rights held by Mr Soller in relation to the FY19-21 LTI plan are expected to vest on 15 August 2021. Mr Soller retained (on a pro-rata basis) 175,946 and 115,542 of his FY20-FY22 and FY21-FY23 LTI performance rights, respectively, which will be tested in accordance with existing performance conditions. The number of rights retained was determined on a pro-rata basis up to the date of Mr Soller’s cessation of employment on 31 December 2021. The balance of the performance rights in relation to the FY20-FY22 and FY21-FY23 LTI plans were forfeited. KMP shareholdings Name J Adams A Bell B Soller (retired) C Baddock S Marshall A Welsh Total Balance at 1 May 2020 Acquired during the year1 Other adjustments2 Balance at 30 April 2021 Balance at report date - - 184,927 221,400 196,713 32,603 635,643 547,858 - 209,213 65,116 190,656 39,606 1,052,449 - - (394,140) - - - (394,140) 547,858 - - 286,516 387,369 72,209 1,293,952 547,858 - - 286,516 387,369 72,209 1,293,952 1 Includes vesting of shares in relation to Metcash deferred STI and LTI plans. 2 Reflects changes in KMP composition following retirement or resignation. This concludes the Remuneration Report. Metcash Group Financial Report FY21 71 32 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information For the year ended 30 April 2021 Directors’ Report Directors’ Report Directors’ Report For the year ended 30 April 2021 Other disclosures Other disclosures Unissued shares under share options and performance rights At the date of this report, there were 6,496,163 performance rights (6,463,229 at the reporting date). There were no share options on Unissued shares under share options and performance rights issue at the reporting date or at the date of this report. Refer to note 19 of the financial statements for further details regarding At the date of this report, there were 6,496,163 performance rights (6,463,229 at the reporting date). There were no share options on performance rights. issue at the reporting date or at the date of this report. Refer to note 19 of the financial statements for further details regarding performance rights. Shares issued as a result of options and performance rights During the year, a total of 1,022,632 shares and 619,892 shares were acquired on market in relation to the vesting of the FY18-FY20 LTI Shares issued as a result of options and performance rights grant and FY20 STI deferred equity component, respectively, and these shares were issued to employees and executives. There were During the year, a total of 1,022,632 shares and 619,892 shares were acquired on market in relation to the vesting of the FY18-FY20 LTI no other shares issued to employees or executives during or since the end of the financial year in respect of the exercise of options or grant and FY20 STI deferred equity component, respectively, and these shares were issued to employees and executives. There were performance rights. no other shares issued to employees or executives during or since the end of the financial year in respect of the exercise of options or performance rights. Indemnification of Auditors Pursuant to the terms of engagement the Company has with its auditors, EY Australia, the Company has agreed to indemnify EY Indemnification of Auditors Australia to the extent permitted by law and professional regulations, against any losses, liabilities, costs or expenses incurred by EY Pursuant to the terms of engagement the Company has with its auditors, EY Australia, the Company has agreed to indemnify EY Australia where they arise out of or occur in relation to any negligent, wrongful or wilful act or omission by the Company. No payment Australia to the extent permitted by law and professional regulations, against any losses, liabilities, costs or expenses incurred by EY has been made to EY Australia by the Company pursuant to this indemnity, either during or since the end of the financial year. Australia where they arise out of or occur in relation to any negligent, wrongful or wilful act or omission by the Company. No payment has been made to EY Australia by the Company pursuant to this indemnity, either during or since the end of the financial year. Non-audit services The following non-audit services were provided by the Company’s auditor, EY Australia. The Directors are satisfied that the provision Non-audit services of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The The following non-audit services were provided by the Company’s auditor, EY Australia. The Directors are satisfied that the provision nature and scope of each type of non-audit service provided means that auditor independence was not compromised. of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The The auditor’s independence declaration for the year ended 30 April 2021 has been received and is included on page 77. nature and scope of each type of non-audit service provided means that auditor independence was not compromised. The auditor’s independence declaration for the year ended 30 April 2021 has been received and is included on page 117. EY received or are due to receive $457,000 for the provision of non-audit services relating to tax compliance and advisory. EY received or are due to receive $457,000 for the provision of non-audit services relating to tax compliance and advisory. Subsequent events On 28 June 2021, Metcash announced that it has increased its ownership in Total Tools Holdings (TTH) from 70% to 85% for an Subsequent events acquisition cost of $59.4 million. Metcash has also increased its debt facility to TTH from $40 million to $65 million. TTH has significant On 28 June 2021, Metcash announced that it has increased its ownership in Total Tools Holdings (TTH) from 70% to 85% for an growth opportunities and this increase, together with a portion of the consideration for the additional 15% holding, is expected to acquisition cost of $59.4 million. Metcash has also increased its debt facility to TTH from $40 million to $65 million. TTH has significant help fund TTH’s growth plans. This includes expansion of the store network and the acquisition of an ownership interest in a select growth opportunities and this increase, together with a portion of the consideration for the additional 15% holding, is expected to number of stores. help fund TTH’s growth plans. This includes expansion of the store network and the acquisition of an ownership interest in a select In addition, the Group also announced that it is undertaking an Off-Market Buy-Back (‘Buy-Back’) of up to approximately $175.0 number of stores. million1. This follows the Board’s assessment of the Group’s ability to distribute excess capital to shareholders having regard to: an In addition, the Group also announced that it is undertaking an Off-Market Buy-Back (‘Buy-Back’) of up to approximately $175.0 improvement in the level of economic certainty; its near-term capital expenditure and working capital requirements; opportunities to million1. This follows the Board’s assessment of the Group’s ability to distribute excess capital to shareholders having regard to: an grow and create shareholder value; while also maintaining a strong balance sheet with low gearing. Based on an expected Buy-Back improvement in the level of economic certainty; its near-term capital expenditure and working capital requirements; opportunities to of approximately $175.0 million, the Share Buy-Back, together with dividends for FY21, will result in approximately $354.0 million2 grow and create shareholder value; while also maintaining a strong balance sheet with low gearing. Based on an expected Buy-Back being returned to shareholders. of approximately $175.0 million, the Share Buy-Back, together with dividends for FY21, will result in approximately $354.0 million2 being returned to shareholders. Other than matters disclosed in this report, there were no events that have occurred after the end of the financial year that would materially affect the reported results or would require disclosure in this report. Other than matters disclosed in this report, there were no events that have occurred after the end of the financial year that would Rounding materially affect the reported results or would require disclosure in this report. The amounts contained in this report and in the financial statements have been rounded to the nearest $100,000 (where rounding is Rounding applicable) under the option available to the Company under ASIC Corporations Instrument 2016/191. The Company is an entity to The amounts contained in this report and in the financial statements have been rounded to the nearest $100,000 (where rounding is which the legislative instrument applies. applicable) under the option available to the Company under ASIC Corporations Instrument 2016/191. The Company is an entity to Signed in accordance with a resolution of the Directors. which the legislative instrument applies. Signed in accordance with a resolution of the Directors. Jeff Adams Director Jeff Adams Sydney, 28 June 2021 Director Sydney, 28 June 2021 1 Metcash may vary the size of the Buy-Back depending on a number of factors including shareholder demand, market conditions and future capital requirements. If Metcash increases the Buy-Back it will not buy back more shares than allowed within its 10% limit under the Corporations Act. 2 Reflects a Buy-Back of ~$175.0 million and excludes any FY22 potential dividends. 1 Metcash may vary the size of the Buy-Back depending on a number of factors including shareholder demand, market conditions and future capital requirements. If Metcash increases the Buy-Back it will not buy back more shares than allowed within its 10% limit under the Corporations Act. 72 Metcash Annual Report 2021 2 Reflects a Buy-Back of ~$175.0 million and excludes any FY22 potential dividends. Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 33 33 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Financial Report For the year ended 30 April 2021 Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cashflows Notes to the Financial Statements 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Corporate Information Segment Information Other Income And Expenses Income Tax Dividends Trade Receivables And Loans Right-Of-Use Assets, Lease Receivables And Lease Liabilities Equity-Accounted Investments Property, Plant And Equipment Intangible Assets Interest-Bearing Borrowings 12. Provisions 13. Put Options And Other Financial Liabilities 14. Contributed Equity And Reserves 15. Reconciliation Of Cashflows From Operating Activities 16. Financial Risk Management 17. Capital Management 18. Related Party Disclosures 19. Share-Based Payments 20. Information Relating To Metcash Limited (The Parent Company) 21. Auditors Remuneration 22. Earnings Per Share 23. Business Combinations 24. Commitments And Contingent Liabilities 25. Subsequent Events Appendix A – Summary Of Significant Accounting Policies Appendix B – Information On Subsidiaries Appendix C – Equity-accounted Investments Directors’ Declaration Auditor’s Independence Declaration Independent Auditor’s Report 74 75 76 77 78 78 79 80 81 82 84 86 87 88 90 90 91 92 93 93 96 97 98 100 101 101 102 103 104 105 112 115 116 117 118 73 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther InformationFY21 $m 14,315.3 (12,834.0) 1,481.3 FY20 $m 13,025.4 (11,712.7) 1,312.7 Statement of Comprehensive Income Statement of Comprehensive Income For the year ended 30 April 2021 For the year ended 30 April 2021 Notes 2 3 8 3 3 3 3 3 3 4 Sales revenue Cost of sales Gross profit Other income Share of profit from equity-accounted investments Employee benefit expenses Depreciation and amortisation Lease expenses Provisions for impairment, net of reversals Other expenses Finance costs, net Significant items Profit before income tax Income tax expense Net profit/(loss) for the year Other comprehensive (loss)/income for the year, net of tax Total comprehensive income/(loss) for the year Net profit/(loss) for the year is attributable to: Equity holders of the parent Non-controlling interests Total comprehensive income/(loss) for the year is attributable to: Equity holders of the parent Non-controlling interests Earnings/(loss) per share attributable to the ordinary equity holders of the Company: Basic earnings/(loss) per share (cents) Diluted earnings/(loss) per share (cents) 22 22 24.0 20.1 (727.2) (163.7) (69.2) (42.9) (121.0) (42.6) (17.0) 341.8 (100.4) 241.4 (1.8) 239.6 239.0 2.4 241.4 237.2 2.4 239.6 23.4 23.3 The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes. 74 Metcash Annual Report 2021 Metcash Group Financial Report FY21 25.6 5.3 (651.4) (157.2) (73.0) (28.3) (98.8) (52.0) (268.5) 14.4 (69.6) (55.2) 0.7 (54.5) (56.8) 1.6 (55.2) (56.1) 1.6 (54.5) (6.2) (6.2) 34 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Statement of Financial Position Statement of Financial Position As at 30 April 2021 As at 30 April 2021 Notes FY21 $m FY20 $m ASSETS Current assets Cash and cash equivalents Trade receivables and loans Lease receivables Inventories Assets held for sale Other financial assets Total current assets Non-current assets Trade receivables and loans Lease receivables Equity-accounted investments Net deferred tax assets Property, plant and equipment Right-of-use assets Intangible assets Total non-current assets TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Lease liabilities Provisions Income tax payable Put options and other financial liabilities Total current liabilities Non-current liabilities Interest-bearing borrowings Lease liabilities Provisions Put options and other financial liabilities Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Retained earnings Other reserves Parent interest Non-controlling interests TOTAL EQUITY 6 7 6 7 8 4 9 7 10 7 12 13 11 7 12 13 14 14 124.6 1,622.4 41.5 1,008.0 11.0 2.8 2,810.3 15.7 239.0 82.5 125.8 231.8 618.9 729.1 2,042.8 4,853.1 2,094.7 146.6 139.7 31.9 21.9 2,434.8 - 888.0 44.4 194.8 1,127.2 3,562.0 275.1 1,578.2 55.6 1,032.2 11.4 1.5 2,954.0 25.7 237.1 77.6 120.0 214.0 485.4 581.8 1,741.6 4,695.6 2,064.1 173.4 116.3 1.7 7.2 2,362.7 188.4 712.7 58.1 2.1 961.3 3,324.0 1,291.1 1,371.6 867.0 414.6 (1.7) 1,279.9 11.2 1,291.1 853.5 505.5 (2.3) 1,356.7 14.9 1,371.6 The above Statement of Financial Position should be read in conjunction with the accompanying notes. Metcash Group Financial Report FY21 75 35 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Statement of Changes in Equity Statement of Changes in Equity For the year ended 30 April 2021 For the year ended 30 April 2021 Contributed equity $m Retained earnings $m Other reserves $m Notes Owners of the parent $m Non- controlling interests $m Total equity $m At 1 May 2020 853.5 505.5 (2.3) 1,356.7 14.9 1,371.6 Total comprehensive income/(loss), net of tax - 239.0 (1.8) 237.2 2.4 239.6 Transactions with owners Proceeds from equity raising, net of costs Dividends paid Recognition of put option liabilities Share of associate’s adjustment on initial adoption of AASB 16 Leases Shares issued to employees Share-based payments expense At 30 April 2021 14 5 13 19 13.5 - - - - - 867.0 - (148.3) (172.6) (9.0) - - 414.6 - - - - (6.3) 8.7 (1.7) 13.5 (148.3) (172.6) (9.0) (6.3) 8.7 1,279.9 - (1.4) (4.7) - - - 11.2 13.5 (149.7) (177.3) (9.0) (6.3) 8.7 1,291.1 At 1 May 2019 559.2 680.5 (0.8) 1,238.9 9.6 1,248.5 Total comprehensive (loss)/income, net of tax - (56.8) 0.7 (56.1) 1.6 (54.5) Transactions with owners Proceeds from equity raising, net of costs Dividends paid Acquisition of a subsidiary Shares issued to employees Share-based payments expense At 30 April 2020 14 5 19 294.3 - - - - 853.5 - (118.2) - - - 505.5 - - - (5.2) 3.0 (2.3) 294.3 (118.2) - (5.2) 3.0 1,356.7 - (1.0) 4.7 - - 14.9 294.3 (119.2) 4.7 (5.2) 3.0 1,371.6 The above Statement of Changes in Equity should be read in conjunction with the accompanying notes. 76 Metcash Annual Report 2021 Metcash Group Financial Report FY21 36 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Statement of Cash Flows Statement of Cashflows For the year ended 30 April 2021 For the year ended 30 April 2021 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Financing component of lease payments, net Interest and dividends, net Income tax paid, net of tax refunds Net cash generated from operating activities Cash flows from investing activities Proceeds from sale of business and assets Payments for acquisition of assets Payments for acquisition of businesses, net of cash acquired Receipts from subleases, excluding the financing component Loans repaid by other entities, net Net cash used in investing activities Cash flows from financing activities Proceeds from equity raising, net of costs (Repayments of)/proceeds from borrowings, net Payments for on-market purchase of shares Payments for lease liabilities, excluding the financing component Payment of dividends to owners of the parent Payment of dividends to non-controlling interests Net cash generated (used in)/from financing activities Net (decrease)/increase in cash and cash equivalents Add: opening cash and cash equivalents Cash and cash equivalents at the end of the year Notes FY21 $m FY20 $m 7 15 23 7 14 11 7 17,845.6 (17,256.7) (30.3) (4.2) (78.9) 475.5 16,149.7 (15,905.1) (28.5) (16.5) (82.1) 117.5 0.6 (85.6) (143.1) 44.3 12.1 (171.7) 13.5 (190.9) (5.2) (122.0) (148.3) (1.4) (454.3) (150.5) 275.1 124.6 5.4 (61.5) (29.7) 45.2 4.2 (36.4) 294.3 9.3 (3.3) (129.7) (118.2) (1.0) 51.4 132.5 142.6 275.1 The above Statement of Cash Flows should be read in conjunction with the accompanying notes. Metcash Group Financial Report FY21 77 37 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 1. CORPORATE INFORMATION The financial statements of Metcash Limited (the ‘Company’) and its controlled entities (together the ‘Group’) for the year ended 30 April 2021 were authorised for issue in accordance with a resolution of the Directors on 28 June 2021. Metcash Limited is a for profit company limited by ordinary shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the Group are described in the Directors’ Report. The registered office of the Company is 1 Thomas Holt Drive, Macquarie Park NSW 2113. The basis of preparation of the financial statements and the significant accounting policies applied are summarised in Appendix A. 2. SEGMENT INFORMATION The Group has identified its operating segments based on the internal reports that are reviewed and used by the Chief Executive Officer (the chief operating decision maker) in assessing performance and in determining the allocation of resources. Discrete financial information about these operating segments is reported on at least a monthly basis. The information reported to the CEO is aggregated based on product types and the overall economic characteristics of industries in which the Group operates. The Group’s reportable segments are therefore as follows:  Food activities comprise the distribution of a range of products and services to independent supermarket and convenience retail outlets.  Liquor activities comprise the distribution of liquor products to independent retail outlets and hotels.  Hardware activities comprise the distribution of hardware products to independent retail outlets and the operation of company owned retail stores. The Group operates predominantly in Australia. The Group has operations in New Zealand that represent less than 5% of revenue, results and assets of the Group. The Group does not have a single customer which represents greater than 10% of the Group's revenue. Sales between segments are based on similar terms and conditions to those in place with third party customers. Segment results Food Liquor Hardware Segment total Corporate Group underlying earnings before interest and tax (‘EBIT’) Finance costs, net (Note 3) Significant items (Note 3) Profit before income tax 78 Metcash Annual Report 2021 Metcash Group Financial Report FY21 Segment revenue Segment results FY21 $m 8,316.3 4,374.3 1,624.7 FY20 $m 8,121.6 3,670.3 1,233.5 14,315.3 13,025.4 FY21 $m 192.4 88.7 136.0 417.1 (15.7) 401.4 (42.6) (17.0) 341.8 FY20 $m 182.7 72.8 84.2 339.7 (4.8) 334.9 (52.0) (268.5) 14.4 38 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 3. OTHER INCOME AND EXPENSES (i) Other income Lease income - rent Lease income - outgoings recoveries Net gain from disposal of business and plant and equipment (ii) Employee benefit expenses Salaries and wages, incentives, and on-costs Superannuation expense Share-based payments expense (iii) Depreciation and amortisation Depreciation of right-of-use assets Depreciation of property, plant and equipment Amortisation of software Amortisation of other intangible assets (iv) Lease expenses Property rent Property outgoings Equipment and other leases (v) Provisions for impairment, net of reversals Trade receivables and loans Inventories Property provisions Other impairments (net) (vi) Finance costs, net Interest expense Transaction fees in relation to customer charge cards (Note 6) Deferred borrowing costs Finance component of lease payments, net Finance costs from discounting of provisions Interest income (vii) Significant items Total Tools acquisition costs and put option valuation (Note 23) Project Horizon implementation costs MFuture implementation costs COVID-19 impairments Impairment of goodwill and other assets Total significant items before tax Income tax benefit attributable to significant items Total significant items after tax Metcash Group Financial Report FY21 FY21 $m 7.1 16.3 0.6 24.0 673.1 45.4 8.7 727.2 106.8 29.5 22.8 4.6 163.7 3.9 54.7 10.6 69.2 14.1 31.2 (6.8) 4.4 42.9 9.8 2.0 1.7 30.3 2.7 (3.9) 42.6 6.1 7.9 3.5 (0.5) - 17.0 (3.3) 13.7 FY20 $m 8.3 16.8 0.5 25.6 606.1 42.3 3.0 651.4 103.1 26.4 23.0 4.7 157.2 3.9 58.6 10.5 73.0 13.2 22.2 (9.3) 2.2 28.3 16.9 5.4 1.0 28.5 3.5 (3.3) 52.0 - - 10.5 15.6 242.4 268.5 (12.9) 255.6 79 39 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information For the year ended 30 April 2021 For the year ended 30 April 2021 For the year ended 30 April 2021 OTHER INCOME AND EXPENSES (continued) OTHER INCOME AND EXPENSES (continued) OTHER INCOME AND EXPENSES (continued) Notes to the Financial Statements Notes to the Financial Statements Notes to the Financial Statements Notes to the Financial Statements 3. 3. 3. Project Horizon implementation costs Project Horizon implementation costs Project Horizon implementation costs Metcash has embarked on the three-year Project Horizon stage one program aimed at derisking the Group’s processes by replacing Metcash has embarked on the three-year Project Horizon stage one program aimed at derisking the Group’s processes by replacing Metcash has embarked on the three-year Project Horizon stage one program aimed at derisking the Group’s processes by replacing aged technology whilst driving efficiencies and simplifying processes through the development of a single operating system across aged technology whilst driving efficiencies and simplifying processes through the development of a single operating system across the Group. In FY21, the Group incurred $17.3 million of capital expenditure and $7.9 million of expenses on the program. The project aged technology whilst driving efficiencies and simplifying processes through the development of a single operating system across the Group. In FY21, the Group incurred $17.3 million of capital expenditure and $7.9 million of expenses on the program. The project expenses included resource costs, incremental accelerated amortisation of legacy software assets and incremental software licence the Group. In FY21, the Group incurred $17.3 million of capital expenditure and $7.9 million of expenses on the program. The project expenses included resource costs, incremental accelerated amortisation of legacy software assets and incremental software licence and maintenance costs. These costs are separately disclosed within significant items to enable a better understanding of the Group’s expenses included resource costs, incremental accelerated amortisation of legacy software assets and incremental software licence and maintenance costs. These costs are separately disclosed within significant items to enable a better understanding of the Group’s and maintenance costs. These costs are separately disclosed within significant items to enable a better understanding of the Group’s results. results. results. MFuture implementation costs MFuture implementation costs MFuture implementation costs The five-year MFuture program commenced in FY20 and includes initiatives aimed at growth and maximising the effectiveness of the The five-year MFuture program commenced in FY20 and includes initiatives aimed at growth and maximising the effectiveness of the The five-year MFuture program commenced in FY20 and includes initiatives aimed at growth and maximising the effectiveness of the Group’s cost of doing business (‘CODB’). During the current year, the Group incurred $3.5 million (FY20: $10.5 million) of Group’s cost of doing business (‘CODB’). During the current year, the Group incurred $3.5 million (FY20: $10.5 million) of implementation costs related to the MFuture program. The current year costs include redundancies and costs associated with the Group’s cost of doing business (‘CODB’). During the current year, the Group incurred $3.5 million (FY20: $10.5 million) of implementation costs related to the MFuture program. The current year costs include redundancies and costs associated with the implementation costs related to the MFuture program. The current year costs include redundancies and costs associated with the move to the new distribution centre in South Australia (SADC), which became operational in December 2020. move to the new distribution centre in South Australia (SADC), which became operational in December 2020. move to the new distribution centre in South Australia (SADC), which became operational in December 2020. COVID-19 impairments COVID-19 impairments COVID-19 impairments In FY20, an impairment charge of $15.6 million was recognised primarily in relation to expected credit losses from specific groups of In FY20, an impairment charge of $15.6 million was recognised primarily in relation to expected credit losses from specific groups of trade receivables impacted by the COVID-19 restrictions and the write-off of prepaid commitments for events. During the current year, In FY20, an impairment charge of $15.6 million was recognised primarily in relation to expected credit losses from specific groups of trade receivables impacted by the COVID-19 restrictions and the write-off of prepaid commitments for events. During the current year, $6.2 million of the previously recognised allowance for impairment loss was utilised and an $0.5 million impairment reversal was trade receivables impacted by the COVID-19 restrictions and the write-off of prepaid commitments for events. During the current year, $6.2 million of the previously recognised allowance for impairment loss was utilised and an $0.5 million impairment reversal was $6.2 million of the previously recognised allowance for impairment loss was utilised and an $0.5 million impairment reversal was recognised. The Group continues to be subject to volatility and uncertainty in its trading environment and operations due to potential recognised. The Group continues to be subject to volatility and uncertainty in its trading environment and operations due to potential changes to COVID-19 related restrictions and resulting changes in consumer behaviour. Accordingly, the Group has retained provisions recognised. The Group continues to be subject to volatility and uncertainty in its trading environment and operations due to potential changes to COVID-19 related restrictions and resulting changes in consumer behaviour. Accordingly, the Group has retained provisions for credit and inventory related COVID-19 impairments of $10.7 million at balance sheet date. changes to COVID-19 related restrictions and resulting changes in consumer behaviour. Accordingly, the Group has retained provisions for credit and inventory related COVID-19 impairments of $10.7 million at balance sheet date. for credit and inventory related COVID-19 impairments of $10.7 million at balance sheet date. 4. 4. 4. INCOME TAX INCOME TAX INCOME TAX FY21 FY21 $m FY21 $m $m FY20 FY20 $m FY20 $m $m Major components of income tax expense Major components of income tax expense Major components of income tax expense Current income tax charge Current income tax charge Current income tax charge Adjustments in respect of income tax of previous years Adjustments in respect of income tax of previous years Adjustments in respect of income tax of previous years Deferred income tax relating to origination and reversal of temporary differences Deferred income tax relating to origination and reversal of temporary differences Deferred income tax relating to origination and reversal of temporary differences Total income tax expense Total income tax expense Total income tax expense Reconciliation of income tax expense Reconciliation of income tax expense Reconciliation of income tax expense Profit before income tax Profit before income tax Profit before income tax At the Group’s statutory income tax rate of 30% (FY20: 30%) At the Group’s statutory income tax rate of 30% (FY20: 30%) At the Group’s statutory income tax rate of 30% (FY20: 30%) Impairment of goodwill not allowable for tax purposes Impairment of goodwill not allowable for tax purposes Impairment of goodwill not allowable for tax purposes Other assessable/(non-assessable) amounts – net Other assessable/(non-assessable) amounts – net Other assessable/(non-assessable) amounts – net Adjustments in respect of income tax of previous years Adjustments in respect of income tax of previous years Adjustments in respect of income tax of previous years Income tax expense Income tax expense Income tax expense Components of net deferred tax assets Components of net deferred tax assets Components of net deferred tax assets Provisions Provisions Provisions Unutilised tax losses Unutilised tax losses Unutilised tax losses Accelerated depreciation for accounting purposes Accelerated depreciation for accounting purposes Accelerated depreciation for accounting purposes Other Other Other Intangible assets Intangible assets Intangible assets 102.4 102.4 102.4 0.3 0.3 0.3 (2.3) (2.3) (2.3) 100.4 100.4 100.4 341.8 341.8 341.8 102.5 102.5 102.5 - - - (2.4) (2.4) (2.4) 0.3 0.3 0.3 100.4 100.4 100.4 70.7 70.7 70.7 (1.3) (1.3) (1.3) 0.2 0.2 0.2 69.6 69.6 69.6 14.4 14.4 14.4 4.3 4.3 4.3 67.7 67.7 67.7 (1.1) (1.1) (1.1) (1.3) (1.3) (1.3) 69.6 69.6 69.6 131.1 131.1 131.1 - - - 16.5 16.5 16.5 12.3 12.3 12.3 (34.1) (34.1) (34.1) 125.8 125.8 125.8 121.9 121.9 121.9 0.1 0.1 0.1 10.9 10.9 10.9 12.5 12.5 12.5 (25.4) (25.4) (25.4) 120.0 120.0 120.0 Movements in net deferred tax assets Movements in net deferred tax assets Movements in net deferred tax assets 117.3 Opening balance 117.3 Opening balance 117.3 Opening balance Credited/(charged) to net profit for the year (0.2) Credited/(charged) to net profit for the year (0.2) Credited/(charged) to net profit for the year (0.2) (0.1) Charged to other comprehensive income for the year (0.1) Charged to other comprehensive income for the year (0.1) Charged to other comprehensive income for the year 2.4 Tax benefit associated with share issue costs – net 2.4 Tax benefit associated with share issue costs – net 2.4 Tax benefit associated with share issue costs – net 0.6 Adjustments related to business combinations 0.6 Adjustments related to business combinations 0.6 Adjustments related to business combinations 120.0 Closing balance Closing balance 120.0 Closing balance 120.0 The Group has unrecognised gross capital losses of $19.5 million (FY20: $20.8 million) that are available indefinitely for offset against The Group has unrecognised gross capital losses of $19.5 million (FY20: $20.8 million) that are available indefinitely for offset against The Group has unrecognised gross capital losses of $19.5 million (FY20: $20.8 million) that are available indefinitely for offset against future capital gains. future capital gains. future capital gains. 120.0 120.0 120.0 2.3 2.3 2.3 - - - (0.2) (0.2) (0.2) 3.7 3.7 3.7 125.8 125.8 125.8 80 Metcash Annual Report 2021 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 40 40 40 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 4. INCOME TAX (continued) Tax consolidation Metcash Limited and its 100% owned Australian resident subsidiaries formed a tax consolidated group with effect from 1 July 2005. Metcash Limited is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing arrangement in order to allocate income tax expense to the wholly owned subsidiaries on a modified standalone basis. In addition, the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. Tax effect accounting by members of the tax consolidated group Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current taxes to members of the tax consolidated group in accordance with a group allocation method using modified standalone tax calculations as the basis for allocation. Deferred taxes of members of the tax consolidated group are measured and recognised in accordance with the principles of AASB 112 Income Taxes. Under the tax funding agreement, funding is based upon the amounts allocated and recognised by the member entities. Accordingly, funding results in an increase/decrease in the subsidiaries’ intercompany accounts with the tax consolidated group head company, Metcash Limited. 5. DIVIDENDS Dividends paid on ordinary shares during the year Final fully franked dividend for FY20: 6.5c (FY19: 7.0c) Interim fully franked dividend for FY21: 8.0c (FY20: 6.0c) Dividends determined (not recognised as a liability as at 30 April) Final fully franked dividend for FY21: 9.5c (FY20: 6.5c) FY21 $m 66.5 81.8 148.3 FY20 $m 63.6 54.6 118.2 97.1 66.1 On 28 June 2021, the Board determined to pay a fully franked FY21 final dividend of 9.5 cents per share, sourced from the profit reserve established by Metcash Limited (Parent Company), with a record date of 2 July 2021 and payable in cash on 11 August 2021. The Dividend Reinvestment Plan remains suspended with effect from 26 June 2017. Franking credit balance of Metcash Limited Franking account balance as at the end of the financial year at 30% (FY20: 30%) Franking credits that will arise from the payment of income tax payable at the reporting date Franking credits on dividends determined but not distributed to shareholders during the year FY21 $m 216.8 16.5 (41.6) 191.7 FY20 $m 203.8 3.9 (28.5) 179.2 Metcash Group Financial Report FY21 81 41 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 6. TRADE RECEIVABLES AND LOANS Current Trade receivables Allowance for impairment loss Trade receivables Customer charge cards agreement (a) Other receivables and prepayments Trade and other receivables Customer loans Allowance for impairment loss Customer loans Total trade receivables and loans – current Non-current Customer loans Allowance for impairment loss Total trade receivables and loans – non-current FY21 $m 1,294.7 (55.4) 1,239.3 211.9 156.6 1,607.8 15.8 (1.2) 14.6 1,622.4 16.4 (0.7) 15.7 FY20 $m 1,242.7 (58.9) 1,183.8 226.5 148.7 1,559.0 23.8 (4.6) 19.2 1,578.2 25.7 - 25.7 (a) Amounts receivable under the customer charge card agreements are fully offset by a corresponding amount included in trade and other payables and are described below. Movements in allowance for impairment loss Opening balance Charged as an expense during the year Accounts written off as non-recoverable Related to acquisitions and disposals of businesses and other movements Closing balance Weighted average interest FY21 $m 63.5 8.0 (14.2) - 57.3 FY20 $m 69.0 24.7 (31.4) 1.2 63.5 Trade and other receivables are non-interest-bearing and repayment terms vary by pillar. As at 30 April 2021, $4.7 million (FY20: $2.8 million) of customer loans are non-interest-bearing and $27.5 million (FY20: $46.7 million) of customer loans have a weighted average annual interest rate of 5.9% (FY20: 7.4%). Maturity of trade receivables At 30 April 2021, 89.2% (FY20: 92.4%) of trade receivables are either due or required to be settled within 30 days, 9.5% (FY20: 7.0%) have terms extending from 30 to 60 days and 1.3%(FY20: 0.6%) have terms greater than 60 days. Customer charge cards agreement Under an agreement between Metcash and American Express (Amex), eligible retail customers make trade purchases from Metcash using their Amex customer charge cards. Metcash’s trade receivable is settled in full by Amex. Amex subsequently collects the amounts outstanding on the customer charge cards directly from the retailers. Under the agreement, in the event a customer defaults on their payment obligation to Amex, Metcash must reacquire the trade receivable from Amex. The maximum amount payable by Metcash to Amex is limited to the actual face value of the outstanding trade receivable and does not include any interest or any other costs incurred by Amex. Once reacquired, Metcash will seek to collect the trade receivable from the retail customer through its normal credit processes. The agreement operates on an evergreen basis until either Metcash or Amex provides a 12-month notice of cancellation. The earliest date on which the agreement could be cancelled is 6 October 2021. The customer charge cards agreement is presented as part of current trade and other receivables and a matching current liability of $211.9 million (FY20: $226.5 million) is included within trade and other payables, with no impact to the Group’s net asset position. 82 Metcash Annual Report 2021 Metcash Group Financial Report FY21 42 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 6. TRADE RECEIVABLES AND LOANS (continued) Customer loan security The Group has access to security against most customer loans in the event of default. Security held may include bank and personal guarantees, fixed and floating charges and security over property and other assets. Due to the large number and the varied nature of security held, their fair value cannot be practicably estimated. The fair value of the security against a loan is determined when the loan is not deemed to be recoverable and an allowance for impairment loss is raised to cover any deficit in recoverability. Ageing of unimpaired trade receivables and loans Days overdue At 30 April 2021 Neither past due nor impaired Less than 30 days Between 30 and 60 days Between 60 and 90 days Between 90 and 120 days More than 120 days Total At 30 April 2020 Neither past due nor impaired Less than 30 days Between 30 and 60 days Between 60 and 90 days Between 90 and 120 days More than 120 days Total Trade receivables (a) % $m Customer loans % $m Other receivables and prepayments % $m 1,389.5 58.0 3.7 - - - 1,451.2 1,262.3 113.1 16.4 4.2 7.9 6.4 1,410.3 95.7% 4.0% 0.3% - - - 100.0% 89.5% 8.0% 1.2% 0.3% 0.6% 0.4% 100.0% 23.4 0.2 0.4 0.3 0.5 5.5 30.3 33.0 0.4 0.2 0.3 0.6 10.4 44.9 77.2% 0.7% 1.3% 1.0% 1.7% 18.1% 100.0% 73.5% 0.9% 0.4% 0.7% 1.3% 23.2% 100.0% 156.6 - - - - - 156.6 148.7 - - - - - 148.7 100.0% - - - - - 100.0% 100.0% - - - - - 100.0% (a) The ageing profile of trade receivables includes amounts receivable under the customer charge cards agreement. The Group expects that the unimpaired trade receivables and loans presented above are fully recoverable. Metcash Group Financial Report FY21 83 43 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 7. RIGHT-OF-USE ASSETS, LEASE RECEIVABLES AND LEASE LIABILITIES As at 1 May 2020 New and modified leases Additions through business combinations Leases exited Lease remeasurements Impairments, net Depreciation Reclassifications Cash (receipts)/payments Financing component of lease receipts/(payments) As at 30 April 2021 Current Non-current As at 1 May 2019 New and modified leases Leases exited Lease remeasurements Impairments, net Depreciation Reclassifications Cash (receipts)/payments Financing component of lease receipts/(payments) As at 30 April 2020 Current Non-current Right-of-use assets (a) Leasehold properties $m Motor vehicles and equipment $m 452.4 165.5 36.5 - 3.8 (0.4) (92.6) 0.5 - - 565.7 - 565.7 520.3 49.1 (12.0) 2.9 (1.2) (89.0) (17.7) - - 452.4 - 452.4 33.0 34.4 - - - - (14.2) - - - 53.2 - 53.2 34.2 12.9 - - - (14.1) - - - 33.0 - 33.0 Lease receivables (b)(c) $m 292.7 11.4 2.9 (1.3) 16.9 2.7 - (0.5) (57.6) 13.3 280.5 41.5 239.0 316.0 15.2 (6.1) (4.0) (0.9) - 17.7 (59.8) 14.6 292.7 55.6 237.1 Total $m 485.4 199.9 36.5 - 3.8 (0.4) (106.8) 0.5 - - 618.9 - 618.9 554.5 62.0 (12.0) 2.9 (1.2) (103.1) (17.7) - - 485.4 - 485.4 (a) The cost and accumulated depreciation and impairment of the right-of-use assets are presented below: Cost Accumulated depreciation and impairment As at 30 April 2021 Cost Accumulated depreciation and impairment As at 30 April 2020 Right-of-use assets Motor vehicles and equipment $m Leasehold properties $m 765.2 (199.5) 565.7 561.3 (108.9) 452.4 89.9 (36.7) 53.2 55.5 (22.5) 33.0 Lease liabilities $m (886.1) (211.0) (39.5) 1.1 (21.1) - - - 165.6 (43.6) (1,034.6) (146.6) (888.0) (946.5) (77.2) 10.0 (2.1) - - - 172.8 (43.1) (886.1) (173.4) (712.7) Total $m 855.1 (236.2) 618.9 616.8 (131.4) 485.4 (b) As at 30 April 2021, lease receivables include a gross carrying amount of $299.3 million (FY20: $314.7 million) and allowance for impairment losses of $18.8 million (FY20: $22.0 million). 84 Metcash Annual Report 2021 Metcash Group Financial Report FY21 44 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 7. RIGHT-OF-USE ASSETS, LEASE RECEIVABLES AND LEASE LIABILITIES (continued) (c) The future minimum rentals receivable under non-cancellable finance leases are as follows: Within one year After one year but not more than five years More than five years Unearned finance income Impairment of receivables (d) The future minimum rentals receivable under non-cancellable operating leases are as follows: Within one year After one year but not more than five years More than five years (e) Lease cash receipts and payments are presented in the following lines of the statement of cash flows: Receipts from subleases, excluding the financing component Payment for lease liabilities, excluding the financing component Financing component of lease payments, net Net cash payments FY21 $m 55.1 171.7 139.6 366.4 (67.1) (18.8) 280.5 FY21 $m 2.1 5.8 6.8 14.7 FY21 $m 44.3 (122.0) (30.3) (108.0) FY20 $m 57.4 178.9 150.9 387.2 (72.5) (22.0) 292.7 FY20 $m 3.1 7.5 8.5 19.1 FY20 $m 45.2 (129.7) (28.5) (113.0) (f) In FY21, the Group recognised rent expense of $14.5 million (FY20: $14.4 million) from short-term leases and variable lease payments. (g) Extension options are included in a number of lease contracts across the Group. These options are negotiated by management to provide flexibility in managing the leased-asset portfolio and align with the Group’s business needs. The extension options are exercisable only by the Group and not by the lessors. The present value of lease payments to be made under these options that are considered reasonably certain to be exercised have been included in the lease liability balance at 30 April 2021. The undiscounted potential future payments at current rental rates under options that are not considered reasonably certain to be exercised is approximately $1.9 billion, which includes potential lease payments within the next five years of approximately $205.8 million. Metcash Group Financial Report FY21 85 45 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 8. EQUITY-ACCOUNTED INVESTMENTS Nature and extent Appendix C contains key information about the nature and extent of the Group’s equity-accounted investments. Contingent liabilities and commitments Refer note 16 for details of the Group’s contingent liabilities in relation to equity-accounted investments. Share of investees’ profit In aggregate, the Group’s share of profit after tax from equity-accounted investments during the year was $20.1 million (FY20: $5.3 million) which is net of a $8.6 million (FY20: $1.5 million) share of income tax expense incurred by the investees. At the reporting date, the Group’s share of unrecognised gains or losses is not material. Share of investees’ net assets The following table is based on investees’ latest available financial information as at balance sheet date: Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets FY21 $m 96.7 232.2 328.9 133.7 136.7 270.4 58.5 FY20 $m 71.1 151.8 222.9 105.3 63.4 168.7 54.2 86 Metcash Annual Report 2021 Metcash Group Financial Report FY21 46 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 9. PROPERTY, PLANT AND EQUIPMENT Year ended 30 April 2021 Opening balance Additions Additions through business combinations Disposals Reclassifications Depreciation Closing balance At 30 April 2021 Cost Accumulated depreciation and impairment Net carrying amount Year ended 30 April 2020 Opening balance Additions Additions through business combinations Disposals Impairment Reclassifications Depreciation Closing balance At 30 April 2020 Cost Accumulated depreciation and impairment Net carrying amount Land & buildings $m Plant & equipment $m 37.7 0.5 - - (1.1) (0.3) 36.8 44.2 (7.4) 36.8 37.6 0.5 - - - - (0.4) 37.7 44.8 (7.1) 37.7 176.3 58.7 9.0 (4.7) (15.1) (29.2) 195.0 431.1 (236.1) 195.0 180.4 56.0 6.5 (2.4) (15.7) (22.5) (26.0) 176.3 378.5 (202.2) 176.3 Total $m 214.0 59.2 9.0 (4.7) (16.2) (29.5) 231.8 475.3 (243.5) 231.8 218.0 56.5 6.5 (2.4) (15.7) (22.5) (26.4) 214.0 423.3 (209.3) 214.0 Additions to plant and equipment include $30.6 million (FY20: $41.7 million) of assets under construction. The closing balance of plant and equipment includes $28.3 million (FY20: $33.0 million) of assets under construction. Metcash Group Financial Report FY21 87 47 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 10. INTANGIBLE ASSETS Year ended 30 April 2021 Opening balance Additions Additions through business combinations Adjustments to business combinations Impairment Disposals Reclassifications Amortisation Closing balance At 30 April 2021 Cost Accumulated amortisation and impairment Net carrying amount Year ended 30 April 2020 Opening balance Additions Additions through business combinations Adjustments to business combinations Impairment Disposals Reclassifications Amortisation Closing balance At 30 April 2020 Cost Accumulated amortisation and impairment Net carrying amount Software development costs $m Customer contracts $m Trade names and other $m Goodwill $m 55.5 24.6 - - (2.0) (0.7) 16.2 (25.5) 68.1 231.7 (163.6) 68.1 55.0 5.0 - - (1.6) (2.4) 22.5 (23.0) 55.5 191.6 (136.1) 55.5 44.3 - - - - - - (4.4) 39.9 176.1 (136.2) 39.9 49.0 - - - - - - (4.7) 44.3 176.1 (131.8) 44.3 40.3 2.0 31.7 - - - - (0.2) 73.8 77.2 (3.4) 73.8 40.3 - - - - - - - 40.3 43.4 (3.1) 40.3 441.7 - 103.9 1.7 - - - - 547.3 1,529.7 (982.4) 547.3 649.2 - 20.7 1.2 (225.6) (3.8) - - 441.7 1,424.1 (982.4) 441.7 Total $m 581.8 26.6 135.6 1.7 (2.0) (0.7) 16.2 (30.1) 729.1 2,014.7 (1,285.6) 729.1 793.5 5.0 20.7 1.2 (227.2) (6.2) 22.5 (27.7) 581.8 1,835.2 (1,253.4) 581.8 Impairment tests for goodwill and intangibles with indefinite useful lives Description of cash generating units Goodwill acquired through business combinations is allocated to the lowest level within the entity at which the goodwill is monitored, being the three cash-generating units (or ‘CGU’s) - Food, Liquor and Hardware. Indefinite life intangibles primarily comprise trade names and licences. Allocation to CGUs The carrying amounts of goodwill and indefinite life intangibles are allocated to the Group’s CGUs as follows: Allocated goodwill FY20 $m FY21 $m 214.3 148.3 184.7 547.3 214.3 120.3 107.1 441.7 Trade names and other intangibles FY20 $m FY21 $m 2.1 13.1 58.6 73.8 0.2 12.9 27.2 40.3 Cash-generating units Food Liquor Hardware 88 Metcash Annual Report 2021 Metcash Group Financial Report FY21 Post-tax discount rates FY20 FY21 % % 10.6% 9.4% 9.4% 11.3% 10.1% 10.1% 48 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 10. INTANGIBLE ASSETS (continued) Assessment of recoverable amounts The recoverable amounts were determined based on value-in-use calculations using cash flow projections covering a five-year period, which are based on approved strategic plans or forecasts. Estimates beyond the five-year period are calculated using terminal growth rates that are applicable to the trading environment in which the CGU operates. Key assumptions used in assessment The valuations used to support the carrying amounts of intangible assets are based on forward looking key assumptions that are, by nature, uncertain. The nature and basis of the key assumptions used to estimate future cash flows and the discount rates used in the projections, when determining the recoverable amount of each CGU, are set out below and in the table above:  Operating cash flows - Operating cash flow projections are extracted from the most recent approved strategic plans or forecasts that relate to the existing asset base. For each CGU, the cash flow projections for a five-year period have been determined based on expectations of future performance. Key assumptions in the cash flows include sales volume growth, costs of sales and costs of doing business. These assumptions are based on expectations of market demand and operational performance. Cash flow projections are based on risk-adjusted forecasts allowing for estimated changes in the business, the competitive trading environment, legislation and economic growth whilst noting that uncertainties remain due to COVID-19 restrictions and any potential changes to consumer behaviour. Other uncertainties surrounding macroeconomic indicators such as unemployment and GDP growth and the timing and impact on the economy of the withdrawal of government support packages create future uncertainty over the Group’s operating cash flows.  Discount rates - Discount rates are based on the weighted average cost of capital (‘WACC’) for the Group adjusted for an asset- specific risk premium assigned to each CGU. The asset-specific risk premium is determined based on risk embedded within the cash flow projections and other factors specific to the industries in which the CGUs operate. The calculation of WACC is market-driven and key inputs include target capital structure, equity beta, market risk premium, risk- free rate of return and debt risk premium. Pre-tax equivalents of the adopted discount rates are derived iteratively and differ based on the timing and extent of tax cash flows. Pre-tax rates were 15.1% (FY20: 16.1%) for Food, 13.4% (FY20: 14.3%) for Liquor and 13.4% (FY20: 14.1%) for Hardware.  Terminal growth rates - Cash flows beyond the projection period are extrapolated indefinitely using estimated long-term growth rates applicable to the trading environment in which the CGUs operate. A terminal growth rate of 1.5% was applied to all CGUs. Results of assessment Based on the FY21 assessment, no impairment of goodwill was identified in any of the Group’s CGUs. Sensitivity to changes in key assumptions At the assessment date, no reasonably likely change in key assumptions would cause the carrying amount of any CGU to exceed its recoverable amount. Metcash Group Financial Report FY21 89 49 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 11. INTEREST-BEARING BORROWINGS Bank loans – syndicated Bilateral loan Deferred borrowing costs Financial covenants FY21 $m - - - - FY20 $m 190.0 0.9 (2.5) 188.4 See note 16 for details of the Group’s core borrowing facilities. The core borrowings of the Group must comply with two primary covenants which apply to the syndicated bank facilities and the working capital facilities. In FY21, the definition of these covenants in the facility agreements were revised to be on a post-AASB16 basis (FY20: pre-AASB16 basis). They include a Fixed Charges Cover Ratio and a Senior Leverage Ratio. There were no defaults or breaches on the Group’s core borrowings in FY21 and FY20. Fair value The carrying amounts of the Group's borrowings approximate their fair value. The Group had nil borrowings as at the end of the financial year. The weighted average effective interest rate on the syndicated and working capital loans, including interest rate swaps, was 1.9% (FY20: 2.8%) over the financial year. These rates exclude line fees on unutilised facility balances. 12. PROVISIONS 30 April 2021 Current Non-current 30 April 2020 Current Non-current Employee entitlements $m Property provisions $m 128.2 11.2 139.4 104.8 11.5 116.3 11.5 33.2 44.7 11.5 46.6 58.1 Total $m 139.7 44.4 184.1 116.3 58.1 174.4 Property provisions include the value of certain retail store lease obligations recognised as part of the acquisition of Franklins in FY12. The provision is initially recognised at the acquisition date fair value and subsequently utilised to settle lease obligations. The provision related to an individual lease is derecognised when the Group has met or otherwise extinguished its obligations in full under that lease. Provisions are also recognised for obligations such as guarantees, property make-good and other costs. Depending on the nature of these obligations, they are expected to be settled over the term of the lease, at the conclusion of the lease or otherwise when the obligation vests. Movements in property provisions Opening balance Reversals during the year, net Utilised during the year Resulting from acquisitions of businesses Finance cost discount rate adjustment Closing balance 90 Metcash Annual Report 2021 Metcash Group Financial Report FY21 FY21 $m 58.1 (6.8) (9.3) - 2.7 44.7 FY20 $m 85.0 (10.1) (20.0) (0.2) 3.4 58.1 50 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 13. PUT OPTIONS AND OTHER FINANCIAL LIABILITIES 30 April 2021 Current Non-current 30 April 2020 Current Non-current Put option liabilities Total Tools Group put options Put option liabilities $m Other financial liabilities $m 17.7 194.8 212.5 6.1 - 6.1 4.2 - 4.2 1.1 2.1 3.2 Total $m 21.9 194.8 216.7 7.2 2.1 9.3 In September 2020, Metcash acquired a 70% equity interest in Total Tools Holdings Pty Ltd (Total Tools), which is the parent entity in the Total Tools Group comprising the franchisor operations, company-owned stores and subsequently, an ownership interest in 12 Total Tools independent retail stores (‘the JV Stores”). The Total Tools put option agreement allows minority shareholders to sell their 30% equity interest in Total Tools Holdings Pty Ltd to Metcash, exercisable between 1 November 2023 and 31 January 2024. Metcash has the right to acquire the remaining 30% equity interest via a call option, exercisable at any time from 1 November 2023. The exercise price of the call and put option is based on a multiple of the Total Tools Group EBITDA over the 12-month period ending on 29 October 2023, adjusted for a number of items, including net debt and working capital. The Group has recognised an initial liability of $122.2 million in respect of the put option held by minority shareholders in Total Tools Holdings Pty Ltd (refer note 23). In December 2020, Total Tools acquired ownership interests between 51% and 60% in 12 Total Tools independent retail stores. Accordingly, Metcash holds an effective ownership interest of between 35.7% and 42% in these ‘JV Stores’. The Total Tools JV Store put option agreements allow individual minority shareholders to sell their remaining equity interests in the JV Stores to Total Tools, subject to the satisfaction of certain criteria, exercisable between 1 May 2024 and 31 July 2024. Metcash has the right to acquire the remaining equity interests via call options, exercisable at any time. The exercise price of the call and put options are based on a multiple of the respective stores’ EBITDA over the 12-month period ending on 30 April 2024, adjusted for a number of items, including net debt and working capital. The Group has recognised an initial liability of $69.4 million in respect of the put options held by minority shareholders in the Total Tools JV Stores (refer note 23). The above put option liabilities were initially measured at the fair value of the put option exercise prices estimated to be payable under each option. The liabilities are subsequently remeasured at each reporting date at the estimated put option exercise price, with any change in value recorded as a significant item within the Statement of Comprehensive Income, together with the net present value interest unwind on the put option liability. As a result of recognising the put options as a financial liability, Metcash has derecognised the minority shareholders’ non-controlling interest in Total Tools Holdings Pty Ltd and the JV Stores and has ceased accounting for the non-controlling interests. Accordingly, the Statement of Comprehensive Income includes 100% of the net profit of Total Tools and includes 100% of the net profits of the JV Stores. Further details are set out in note 23 of the financial report. Other put options The Group has also recognised a liability of $17.7 million (FY20: $6.1 million) in respect of an additional three put options written over non-controlling interests in non-wholly owned subsidiaries within the Hardware pillar. These put option arrangements allow minority shareholders to sell their equity interests to Metcash, subject to specific terms and conditions. These put options are measured at the present value of the redemption amount under the option. Metcash Group Financial Report FY21 91 51 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 14. CONTRIBUTED EQUITY AND RESERVES Contributed equity At 1 May Issued under equity raising, net of share issue costs At 30 April Number of shares 1,016,399,606 5,963,215 1,022,362,821 FY21 $m 853.5 13.5 867.0 Number of shares 909,256,748 107,142,858 1,016,399,606 FY20 $m 559.2 294.3 853.5 Fully paid ordinary shares carry one vote per share and carry the right to dividends. Shares have no par value. In May 2020, Metcash issued 5,963,215 shares under its Share Purchase Plan (‘SPP’) at $2.28 per share which raised $13.5 million of equity, net of transaction costs. In April 2020, the Company issued 107,142,858 shares via an Institutional Placement at $2.80 per share which raised $294.3 million of equity, net of $5.7 million transaction costs. Other reserves At 1 May 2019 Total comprehensive income, net of tax Shares issued to employees Share-based payments expense At 30 April 2020 Movement in fair value of derivatives Movement in foreign currency valuations Total comprehensive income, net of tax Shares issued to employees Share-based payments expense At 30 April 2021 92 Metcash Annual Report 2021 Metcash Group Financial Report FY21 Share-based payments reserve $m Foreign currency translation reserve $m Cash flow hedge reserve $m Total other reserves $m 4.8 - (5.2) 3.0 2.6 - - - (6.3) 8.7 5.0 (4.8) (0.2) - - (5.0) - (0.3) (0.3) - - (5.3) (0.8) 0.9 - - 0.1 (1.5) - (1.5) - - (1.4) (0.8) 0.7 (5.2) 3.0 (2.3) (1.5) (0.3) (1.8) (6.3) 8.7 (1.7) 52 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 15. RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES Net profit/(loss) for the year Adjustments for: Depreciation and amortisation Provisions for impairment, net of reversals Net gain from disposal of property, plant and equipment Share-based payments expense Other adjustments Changes in assets and liabilities: Increase in trade and other receivables Decrease/(increase) in inventories Increase/(decrease) in tax balances (Decrease)/increase in payables and provisions Cash flows from operating activities 16. FINANCIAL RISK MANAGEMENT Objectives and policies FY21 $m 241.4 163.7 42.9 (0.6) 8.7 10.8 (30.7) 37.6 21.5 (19.8) 475.5 FY20 $m (55.2) 157.2 286.3 (0.5) 3.0 7.6 (117.9) (255.8) (12.5) 105.3 117.5 The Group’s principal financial instruments comprise bank loans and overdrafts, leases, cash and short-term deposits and derivatives. The main purpose of these instruments is to finance the Group’s operations. The Group also has various other financial assets and liabilities such as trade receivables and payables, which arise directly from its operations. The main risks arising from the Group’s financial instruments are liquidity risk, interest rate risk, foreign exchange risk and credit risk. The Board reviews and agrees policies for managing each of these risks and they are detailed below. The objective of the Group’s risk management policy is to support delivery of the Group's financial targets while protecting future financial security. Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial instrument, financial liability and equity instrument are disclosed in Appendix A. Liquidity risk and funding management Liquidity risk is the risk that the Group will be unable to meet its payment obligations when they fall due under normal and extreme circumstances. To limit this risk, the Group manages assets with liquidity in mind, and monitors future cash flows and liquidity on a daily basis. The Group’s primary source of debt funding is a syndicated facility and working capital loans, of which 1.2% (FY20: 20.0%) has been utilised at 30 April 2021. The Group monitors forecasts of liquidity reserves on the basis of expected cash flow. Available credit facilities At the reporting date, the Group had the following unused credit facilities available for its immediate use: At 30 April 2021 Syndicated facility Working capital, including guarantees Total facility $m 675.0 230.0 905.0 Debt usage $m Guarantees & other usage $m Facility available $m - - - - (10.7) (10.7) 675.0 219.3 894.3 Metcash Group Financial Report FY21 93 53 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 16. FINANCIAL RISK MANAGEMENT (continued)  Syndicated facilities Syndicated bank loans are senior unsecured revolving facilities. The facilities are due to expire in May 2022 ($150.0 million), May 2023 ($200.0 million), May 2024 ($100.0 million), September 2024 ($125.0 million) and September 2025 ($100.0 million). Interest is payable on the facilities based on BBSY plus a margin. The applicable margin is dependent upon an escalation matrix linked to the senior leverage ratio achieved. These bank loans are subject to certain financial undertakings as detailed in note 11.  Working capital Working capital bank loans are represented by two unsecured revolving facilities totalling $230.0 million. These facilities mature in July 2021 ($100.0 million), September 2021 ($30.0 million) and February 2022 ($100.0 million). Interest payable on any loans drawn under these facilities is based on BBSY or the RBA cash rate plus a margin. These bank loans are subject to certain financial undertakings as detailed in note 11. Maturity analysis of financial liabilities based on contracted date The following table reflects the gross contracted values of financial liabilities categorised by their contracted dates of settlement. Gross settled derivatives comprise forward exchange contracts that are used to hedge anticipated purchase commitments. Net settled derivatives comprise interest rate swap contracts that are used to hedge floating rate interest payable on bank debt. Under the terms of these agreements, the settlements at expiry include both a cash payment and receipt. As at 30 April 2021 Trade and other payables Financial guarantee contracts Other financial liabilities Put options written over non-controlling interests Lease liabilities Derivative liabilities – gross settled: - Inflows - Outflows Net maturity As at 30 April 2020 Trade and other payables Financial guarantee contracts Put options written over non-controlling interests Lease liabilities Bank and other loans Derivative liabilities – net settled Derivative liabilities – gross settled: - Inflows - Outflows Net maturity 94 Metcash Annual Report 2021 Metcash Group Financial Report FY21 1 year or less $m 1 - 5 years $m More than 5 years $m 2,094.7 0.4 3.8 17.4 189.9 30.4 (30.4) 2,306.2 1 year or less $m 2,064.1 0.7 6.1 177.7 3.5 1.0 1.1 (1.1) 2,253.1 - - - 191.6 526.1 - - 717.7 - - - - 570.0 - - 570.0 1 - 5 years $m More than 5 years $m - 0.4 - 500.3 196.3 0.5 - - 697.5 - - - 408.3 - - - - 408.3 Total $m 2,094.7 0.4 3.8 209.0 1,286.0 30.4 (30.4) 3,593.9 Total $m 2,064.1 1.1 6.1 1,086.3 199.8 1.5 1.1 (1.1) 3,358.9 54 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 16. FINANCIAL RISK MANAGEMENT (continued) Put options The following put options are not included in the above maturity analysis table. These put options are recognised at their fair value of nil. Ritchies Stores Pty Ltd (Ritchies) The Group has a put option with Ritchies Stores Pty Ltd (Ritchies). Metcash has a 26.4% (FY20: 26.0%) ownership interest in Ritchies, which is recognised as an equity-accounted investment on the Group's balance sheet. The remaining shareholders in Ritchies have the right to put their 73.6% (FY20: 74.0%) ownership interests to Metcash, via put option, subject to a margin related annual financial hurdle (‘hurdle’) being achieved. The put option can be exercised collectively by all shareholders during a prescribed period following the approval of Ritchies’ annual audited financial report (‘group put option’ representing the remaining 73.6% shareholding) or in certain circumstances by individual minority shareholders within a prescribed period (‘small shareholder put option’). Should the hurdle be achieved and the shareholders elect to exercise any put option, the purchase consideration payable by Metcash is based on a multiple of the prior year reported earnings, normalised for certain adjustments. Whilst the financial hurdle was achieved in respect of Ritchies’ 2020 financial year, the group put option was not exercised in relation to that year. Metcash estimates that the group put option consideration payable to Ritchies shareholders in respect of the 2020 financial year would have been between $240.0 million and $260.0 million. Two small shareholders holding an aggregate of 2,000 shares (or 0.4% stake in Ritchies) exercised their option under the ‘small shareholder put option’ in relation to Ritchies 2020 financial year, bringing Metcash’s share in Ritchies to 26.4%. If any put options were to be exercised in future years, the exercise price will be determined with reference to Ritchies’ results for that financial year and the consideration payable would reflect those results. The put option agreement terminates when Metcash ceases to hold shares in Ritchies or if Ritchies lists on the ASX. Other put options The Group entered into put and call option agreements with two Total Tools independent retail stores without acquiring any present ownership interest (‘Non-owned stores’). These options are exercisable in 2024 if certain operating performance conditions are met and with an exercise price determined using a multiple of EBITDA. Interest rate risk The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s bank debt obligations with a floating interest rate. The Group's treasury policy requires core debt to be hedged between a range over certain maturity periods. Core debt is defined as the minimum level of drawn debt which is expected to occur over the year. At 30 April 2021, Metcash has nil bank debt obligations and has not entered into interest rate swap contracts (FY20: $130.0 million). At the reporting date, the Group had the following mix of financial assets and liabilities exposed to Australian variable interest rate risk that, except as indicated, are not designated in cash flow hedges: Financial assets Cash and cash equivalents Financial liabilities Bank loans – syndicated Bilateral loan Less: Interest rate swaps notional principal value - designated as cash flow hedges Gross exposure Sensitivity analysis FY21 $m 124.6 - - - - FY20 $m 275.1 (190.0) (0.9) 130.0 (60.9) As the Group’s treasury policy requires core debt to be appropriately hedged, there are no reasonably likely changes in interest rates that are expected to have a material impact on the Group’s net profit after tax and other comprehensive income. Metcash Group Financial Report FY21 95 55 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 16. FINANCIAL RISK MANAGEMENT (continued) Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. Trade receivables and loans The Group trades with a large number of customers and it is Group policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, where a loan has been provided, the Group will obtain security over certain assets of the customer wherever possible. Receivables and loans are monitored on an ongoing basis and a formal review of all balances occurs every six months to measure impairment losses. As identified in note 6, the current level of impairment provision represents 3.4% (FY20: 3.8%) of the Group’s receivables and loans. Lease receivables The Group is exposed to credit risk on ‘back-to-back’ arrangements contained within its property leases where Metcash has subleased properties to retailers. The Group regularly reviews material lease arrangements on an ongoing basis and a formal review of all leases occurs every six months to measure impairment losses. Refer note 7 for further details. Others There are no other significant concentrations of credit risk within the Group. Foreign currency risk The Group is exposed to foreign exchange fluctuations on transactions and balances in respect of its business unit in New Zealand. This operation represents less than 2% of the Group’s total sales and total profit after tax. In addition, the Group undertakes some foreign currency transactions when purchasing goods and services. The Group enters into forward foreign exchange contracts to manage the risk associated with anticipated purchase commitments denominated in foreign currencies. The amount of foreign exchange cover is based on anticipated future purchases in light of current conditions in foreign markets, commitments from customers and experience. 17. CAPITAL MANAGEMENT For the purpose of the Group’s capital management, capital includes all accounts classified as equity on the Statement of Financial Position. The Board’s intention is to continue to invest in the business for future growth while maintaining a strong financial position and otherwise to assess returning surplus capital to shareholders. On 28 June 2021, the Board determined to pay a fully franked FY21 final dividend of 9.5 cents per share. In March 2021, the Board announced increasing the target dividend payout ratio from 60% to 70% of UPAT, effective FY21 and consistent with this, the FY21 final dividend represents a full year dividend payout ratio of ~71% of underlying profit after tax. The Board and management set out to maintain appropriate Statement of Financial Position ratios. Certain Statement of Financial Position ratios are also imposed under the Group’s banking facilities (refer to note 11). Management monitor capital through the gearing ratio (net debt / net debt plus total equity). The gearing ratios at 30 April 2021 and 30 April 2020 were negative (10.7%) and negative (6.7%) (negative representing a net cash position), respectively. No changes were made to the overall objectives, policies or processes for managing capital during the year other than the increase in the target dividend payout ratio to 70%. 96 Metcash Annual Report 2021 Metcash Group Financial Report FY21 56 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 18. RELATED PARTY DISCLOSURES A list of the Group’s subsidiaries is included in Appendix B and a list of equity-accounted investments is included in Appendix C. Material transactions and balances with related parties – Group Transactions with related parties – equity-accounted investments Sales revenue Lease and other charges Dividends received Interest income from lease receivables Balances with related parties – equity-accounted investments Trade receivables – gross Provision for impairment loss Lease receivables – gross Provision for impairment loss Parent entity Details of the parent entity are set out in note 20. Compensation of key management personnel of the Group Short-term Long-term Post-employment Share-based payments FY21 $ FY20 $ 1,318,698,814 1,217,712 6,048,119 2,479,047 1,181,650,288 2,218,367 2,463,596 2,532,012 121,262,314 (148,148) 121,114,166 132,934,718 (473,661) 132,461,057 52,661,428 - 52,661,428 55,709,535 - 55,709,535 FY21 $ FY20 $ 11,976,242 315,344 172,528 2,999,209 15,463,323 9,299,815 303,567 176,336 840,664 10,620,382 Other transactions with key management personnel  Mr Rob Murray is a director of Southern Cross Media Group Limited, Advisory Chairman of Hawkes Brewing Company and was a former director of Linfox Logistics Pty Ltd.  Ms Tonianne Dwyer is a director of Dexus Property Group.  Ms Helen Nash is a director of Inghams Group Limited, Southern Cross Media Group Limited and was a former director of Blackmores Limited.  Mr Peter Birtles is a director of GWA Group Limited.  Ms Christine Holman is a director of McGrath Foundation, Blackmores Limited and Collins Food Group Pty Ltd. Metcash has business relationships with the above entities, including supply and purchase of trading goods and services, property leases and property management. All transactions with the above entities are conducted on an arm’s length basis in the ordinary course of business. Metcash Group Financial Report FY21 97 57 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 19. SHARE-BASED PAYMENTS Description of share-based payment arrangements In FY21, the Group had the following share-based incentive schemes for employees: Scheme name Description Short-term incentives (STI schemes) FY21 at-risk STI plan – deferred component The FY21 at-risk STI plan includes a 33% (Group CEO) and 25% (other KMP and senior executives) deferred component which will be released through the issue of performance rights conditional upon the executives remaining employed by the Company until 15 April 2022. FY20 at-risk STI plan – deferred component The FY20 at-risk STI plan included a 50% (Group CEO) and 40% (other KMP and senior executives) deferred component which was released through the issue of performance rights to executives who remained employed by the Company until 15 April 2021. Long-term incentives (LTI schemes) FY21-FY23 LTI grant This grant was issued to KMP and senior executives during FY21 and is subject to two performance conditions: Return on Funds Employed (‘ROFE’) and Total Shareholder Returns (‘TSR’) over a three-year period from 1 May 2020 to 30 April 2023. FY20-FY22 LTI grant FY19-FY21 LTI grant This grant was issued to KMP and senior executives during FY20 and is subject to two performance conditions: Return on Funds Employed (‘ROFE’) and Total Shareholder Returns (‘TSR’) over a three-year period from 1 May 2019 to 30 April 2022. This grant was issued to KMP and senior executives during FY19 and is subject to two performance conditions: Relative Total Shareholder Return (‘RTSR’) and Underlying Earnings per Share Compound Annual Growth Rate (‘UEPS CAGR’) over a three-year period from 1 May 2018 to 30 April 2021. The STI (deferred component) and LTI schemes are also subject to service conditions, usually from grant date to the date of the allocation of shares. The FY19-FY21 LTI is expected to partially vest at 90%. These vested performance rights will be converted to shares and allocated to the participants under the rights plan on 15 August 2021. As foreshadowed in FY20, the FY18-FY20 LTI plan partially vested on 15 August 2020 at 67.4% which was equivalent to 1,478,780 performance rights. Each performance right entitled the participant to one Metcash share. Metcash acquired 1,022,632 shares on market and allocated these to the participants on 15 August 2020. The balance relating to good leavers was settled in cash. Measurement of fair values FY21 at-risk STI plan – deferred component The 33% (Group CEO) and 25% (other KMP and senior executives) components of the FY21 at-risk STI plan will be deferred and released through the issue of Metcash performance rights conditional upon the executive remaining employed by the Company until 15 April 2022. The number of performance rights will be calculated by dividing 33% (Group CEO) and 25% (other KMP and senior executives) of the STI award dollar value by the volume-weighted average price (VWAP) of Metcash ordinary shares over the 20 trading days ended 30 April 2021 of $3.74 per share. The FY21 expense for the FY21 at-risk STI plan - deferred component has been based on an estimate of the fair value of the performance rights. The fair value per grant will be determined in accordance with AASB 2 Share-based payments at grant date. FY20 at-risk STI plan – deferred component The 50% (Group CEO) and 40% (other KMP and senior executives) deferred components of the FY20 at-risk STI plan have been released through the issue of Metcash performance rights to executives who remained employed by the Company on 15 April 2021. The number of performance rights was calculated by dividing 50% (Group CEO) and 40% (other KMP and senior executives) of the STI award dollar value by the volume-weighted average price (VWAP) of Metcash ordinary shares over the 20 trading days ended 16 March 2020 of $2.58 per share. The Board determined that it was appropriate to determine the VWAP during pre-COVID-19 period. The fair value per grant was determined in accordance with AASB 2 Share-based payments at grant date. 98 Metcash Annual Report 2021 Metcash Group Financial Report FY21 58 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 19. SHARE-BASED PAYMENTS (continued) Performance rights The weighted average inputs to the valuation of the STI deferred component and LTI performance rights valued at grant date using the Black-Scholes option pricing model are as follows: Dividend yield Risk free rate Expected volatility Days to vesting Share price at grant date Fair value at grant date At-risk STI deferred FY20 LTI FY21 – FY23 (ROFE) LTI FY20 – FY22 (ROFE) LTI FY19 – FY21 (UEPS) 4.2% 0.1% 37.0% 296 $2.87 $2.57 4.2% 0.1% 37.0% 977 $3.46 $3.10 4.8% 1.0% 31.0% 1,121 $2.81 $2.66 5.2% 2.0% 37.0% 1,121 $2.56 $2.23 The weighted average inputs to the valuation of performance rights valued at grant date by an external specialist using the Monte Carlo option pricing model are as follows: Dividend yield Risk free rate Expected volatility Days to vesting Share price at grant date Fair value at grant date LTI FY21 – FY23 (TSR) LTI FY20 – FY22 (TSR) LTI FY19 – FY21 (RTSR) 4.2% 0.1% 37.0% 977 $3.46 $2.13 4.8% 1.0% 31.0% 1,121 $2.81 $1.23 5.2% 2.0% 37.0% 1,121 $2.56 $0.72 Service and non-market performance conditions attached to the grants were not taken into account in measuring fair value. Market performance conditions associated with the grants have been reflected in the fair value measurement. Expected volatility is based on an evaluation of the historical volatility of Metcash’s share price, particularly over the historical period commensurate with the expected term. Performance rights are only exercisable on their vesting date. Reconciliation of outstanding performance rights The following table illustrates the movement in the number of performance rights during the year: Outstanding at the beginning of the year Granted during the year Vested/exercised during the year Expired/forfeited during the year Outstanding at the end of the year FY21 Number FY20 Number 6,370,539 3,022,580 (2,098,672) (798,284) 6,496,163 6,532,863 2,656,799 (1,779,903) (1,039,220) 6,370,539 The outstanding balance of performance rights as at 30 April 2021 is represented by: Scheme name LTI FY21 – FY23 LTI FY20 – FY22 LTI FY19 – FY211 Others Total outstanding at the reporting date Vesting date 15 August 2023 15 August 2022 15 August 2021 15 August 2021 Total outstanding (number) 2,363,928 2,219,333 1,874,142 38,760 6,496,163 Exercisable (number) -- - - - Remaining contractual life 2 years 4 months 1 year 4 months 4 months 4 months 1. The FY19-FY21 LTI performance rights plan is expected to partially vest on 15 August 2021 at 90% subject only to the employees remaining in employment until 15 August 2021. These vested performance rights will be converted to shares and allocated to the participants under the Rights plan on 15 August 2021. Metcash Group Financial Report FY21 99 59 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 19. SHARE-BASED PAYMENTS (continued) Key terms and conditions All performance rights associated with the above schemes are equity-settled performance rights and were issued under the Metcash Executives and Senior Managers Performance Rights Plan (Rights Plan). Fully paid ordinary shares issued under this plan rank equally with all other existing fully paid ordinary shares in respect of voting and dividend rights. The key terms of the ‘LTI’ and ‘STI plan – deferred component’ plans include: 1. Each performance right is an entitlement to receive a fully paid ordinary share in the Company on terms and conditions determined by the Board, including vesting conditions linked to service and performance over the contractual life of the rights; 2. Performance rights which do not vest are forfeited; 3. Performance rights are offered at no cost to participants; 4. Performance rights do not carry voting or dividend rights, however shares allocated upon vesting of performance rights will carry the same rights as other ordinary shares; 5. Ordinarily, in the event of cessation of employment, unvested performance rights will lapse; however, this is subject to Board discretion, which may be exercised in circumstances including death and disability, retirement, redundancy or special circumstances; 6. When testing performance conditions, the Board has full discretion in relation to its calculation and to include or exclude items if appropriate, including to better reflect shareholder expectations or management performance; 7. Some or all of a participant’s performance rights may vest even if a performance condition has not been satisfied, if, using its discretion, the Board considers that to do so would be in the interests of the Group; and 8. If there is a change in control of the Group, the Board retains full discretion to vest or lapse some or all performance rights. 20. INFORMATION RELATING TO METCASH LIMITED (THE PARENT COMPANY) Statement of financial position Current assets – amounts receivable from subsidiaries Net assets Contributed equity (note 14) Accumulated losses Profit reserve Share-based payments reserve Total equity Statement of comprehensive income Net profit for the year Total comprehensive income for the year, net of tax Profit reserve FY21 $m 1,300.5 1,300.5 867.0 (1,265.4) 1,693.9 5.0 1,300.5 - - FY20 $m 1,432.8 1,432.8 853.5 (1,265.4) 1,842.2 2.5 1,432.8 - - The Parent Company established a profit reserve in FY17 within its separate financial statements, in accordance with the Company’s constitution. During the current financial year, the FY20 final dividend of $66.5 million and the FY21 interim dividend of $81.8 million were sourced and paid from the profit reserve. Closed Group The Parent Company has provided guarantees as part of the Closed Group arrangements as disclosed in Appendix C. Contingent liabilities The contingent liabilities in relation to the Parent Company are disclosed in note 24. 100 Metcash Annual Report 2021 Metcash Group Financial Report FY21 60 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 21. AUDITORS REMUNERATION Amounts received or due and receivable by the auditor of the Parent Company and any other entity in the Group for: - Auditing the statutory financial report of the Parent Company covering the Group and the statutory financial report of any controlled entities - - Fees for other assurance and agreed-upon procedure services - Fees for tax compliance and other FY21 $ FY20 $ 1,825,000 2,100,000 58,000 399,000 2,282,000 36,000 177,000 2,313,000 22. EARNINGS PER SHARE The following reflects the income data used in the basic and diluted earnings per share (EPS) computations: Earnings used in calculating basic and diluted EPS Net profit/(loss) attributable to ordinary equity holders of Metcash Limited The following reflects the share data used in the basic and diluted EPS computations: Weighted average number of ordinary shares used in calculating basic EPS Effect of dilutive securities Weighted average number of ordinary shares used in calculating diluted EPS FY21 $m FY20 $m 239.0 (56.8) FY21 Number FY20 Number 1,021,936,877 3,228,702 1,025,165,579 910,139,794 - 910,139,794 At the reporting date, 6,496,163 performance rights (FY20: 6,370,539) were outstanding, of which 3,267,462 (FY20: 6,370,539) were not included in the calculation of diluted EPS as they are not dilutive for the periods presented. Refer note 19 for more details about performance rights. Metcash Group Financial Report FY21 101 61 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 23. BUSINESS COMBINATIONS Total Tools Holdings Pty Ltd (‘Total Tools’) and Total Tools JV Stores In September 2020, Metcash acquired a 70% ownership interest in Total Tools Holdings Pty Ltd. Total Tools is the franchisor to the largest tool retail network in Australia with 82 bannered stores nationwide as at 1 September 2020. In December 2020, Total Tools acquired ownership interests of between 51% and 60% in twelve Total Tools independent retail stores. Accordingly, Metcash holds an effective ownership interest of between 35.7% and 42% in these ‘JV Stores’. Details of the purchase consideration and the provisional fair values of the net assets acquired at the date of acquisition are as follows: Net assets acquired Cash and cash equivalents Trade and other receivables Inventories Trade payables and provisions Property, plant and equipment Intangibles Lease liabilities (net) Deferred tax assets (net) Income tax payable Net identifiable assets acquired Non-controlling interest Goodwill Total purchase consideration Total Tools Group Total Tools Holdings $m Total Tools JV Stores $m 8.4 17.0 15.8 (26.5) 3.5 31.4 (0.1) (4.6) (1.5) 43.4 (13.0) 26.5 56.9 3.3 8.5 21.9 (18.5) 4.4 - - - - 19.6 (9.2) 32.1 42.5 Total $m 11.7 25.5 37.7 (45.0) 7.9 31.4 (0.1) (4.6) (1.5) 63.0 (22.2) 58.6 99.4 From the respective dates of acquisition, the Total Tools Group has contributed $141.1 million of sales revenue and $24.0 million of the earnings before interest and tax (EBIT) to the Metcash Group. Put and call options written over non-controlling interests In accordance with the AASB 10 Consolidated Financial Statements, the Group has recognised financial liabilities for the Total Tools put option and the Total Tools JV Store put options at their provisional fair values totaling $191.6 million and has derecognised the non-controlling interests of ($22.2 million) related to the acquisitions. Details of these put options are set out in note 13 of the financial report. As at the date of acquisition, the net amount of $169.4 million has been recognised as an adjustment to retained earnings as shown below: Non-controlling interests derecognised Adjustment recognised directly in equity (retained earnings) Fair value of put options - recognised as a financial liability Total Tools Group Total Tools Holdings $m Total Tools JV Stores $m 13.0 109.2 122.2 9.2 60.2 69.4 Total $m 22.2 169.4 191.6 Any changes in the value of the put option financial liabilities that occur subsequent to initial recognition will be recognised in the Statement of Comprehensive Income and will be disclosed within significant items. During the current year Metcash recognised an expense of $3.2 million in relation to the interest unwind on the net present value of the put option liabilities and nil expense in relation to other changes in the value of the put options. 102 Metcash Annual Report 2021 Metcash Group Financial Report FY21 62 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 23. BUSINESS COMBINATIONS (continued) Purchase consideration – cash outflow Cash consideration Less: Cash and cash equivalents acquired Net cash outflow – investing activities Total Tools Holdings $m Total Tools JV Stores $m 57.5 (8.4) 49.1 42.5 (3.3) 39.2 Total Tools Group Total $m 100.0 (11.7) 88.3 Costs of $2.9 million that were incurred in relation to the Total Tools Group acquisition are included in significant items in the Statement of Comprehensive Income and in operating cash flows in the Statement of Cash Flows. Other business combinations In June 2020, Metcash acquired a private label brand portfolio from Kollaras & Co, which is a key accelerator of the Liquor pillar’s private label growth strategy, for a total cash purchase price consideration of $26.2 million, of which $21.0 million is allocated to goodwill. During the year, the Group also entered into a number of other business combinations that were not material to the Group, individually or in aggregate. The total cash purchase price consideration for these businesses was $28.6 million, of which $24.3 million is allocated to goodwill. The accounting for the above business combinations is provisional as at 30 April 2021. 24. COMMITMENTS AND CONTINGENT LIABILITIES Commitments Capital operating expenditure The Group had no material commitments for capital expenditure at 30 April 2021 (FY20: nil). Contingent liabilities Bank guarantees to third parties in respect of property lease obligations Bank guarantees in respect of Work Cover Financial guarantee contracts FY21 $m 8.7 2.0 FY20 $m 16.6 2.7 The Group has granted a financial guarantee contract relating to the bank loan of a joint venture, Adcome Pty Ltd. Under the contract, the bank has the right to require Metcash to repay the debt under certain prescribed circumstances of default. The estimate of the maximum amount payable in respect of the guarantee, if exercised, is $37.2 million (FY20: $46.5 million). Had the guarantee been exercised at 30 April 2021, the amount payable would have been $35.2 million (FY20: $39.1 million). The fair value of the financial guarantee contract at the reporting date was $0.4 million (FY20: $1.1 million) and is recognised as a financial liability. Put options Put options, including in relation to Ritchies Stores Pty Ltd, are detailed along with other contingent liabilities in note 16 of the financial statements. Metcash Group Financial Report FY21 103 63 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 25. SUBSEQUENT EVENTS On 28 June 2021, Metcash announced that it has increased its ownership in Total Tools Holdings (TTH) from 70% to 85% for an acquisition cost of $59.4 million. Metcash has also increased its debt facility to TTH from $40 million to $65 million. TTH has significant growth opportunities and this increase, together with a portion of the consideration for the additional 15% holding, is expected to help fund TTH’s growth plans. This includes expansion of the store network and the acquisition of an ownership interest in a select number of stores. In addition, the Group also announced that it is undertaking an Off-Market Buy-Back (‘Buy-Back’) of up to approximately $175.0 million1. This follows the Board’s assessment of the Group’s ability to distribute excess capital to shareholders having regard to: an improvement in the level of economic certainty; its near-term capital expenditure and working capital requirements; opportunities to grow and create shareholder value; while also maintaining a strong balance sheet with low gearing. Based on an expected Share Buy- Back of approximately $175.0 million, the Buy-Back, together with dividends for FY21, will result in approximately $354.0 million2 being returned to shareholders. Other than matters disclosed in this report, there were no events that have occurred after the end of the financial year that would materially affect the reported results or would require disclosure in this report. 1 Metcash may vary the size of the Buy-Back depending on a number of factors including shareholder demand, market conditions and future capital requirements. If Metcash increases the Buy-Back it will not buy back more shares than allowed within its 10% limit under the Corporations Act. 2 Reflects a Buy-Back of ~$175.0 million and excludes any FY22 potential dividends. 104 Metcash Annual Report 2021 Metcash Group Financial Report FY21 64 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 Appendix A – Summary of significant accounting policies 1. BASIS OF ACCOUNTING (b) Australian Accounting Standards issued but not yet effective The financial statements are a general purpose financial report that has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial statements have been prepared using the historical cost basis except for derivative financial instruments and share- based payments which are measured at fair value. The financial statements are presented in Australian dollars and all values are rounded to the nearest $100,000 unless otherwise stated under the option available to the Company under ASIC Corporations Instrument 2016/191. The Company is an entity to which the legislative instrument applies. The current financial year comprises the 52-week period that commenced on 27 April 2020 and ended on 25 April 2021. The prior financial year comprised the 52-week period that commenced on 29 April 2019 and ended on 26 April 2020. 2. STATEMENT OF COMPLIANCE The financial statements comply with Australian Accounting Standards. The financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (a) New or amended Accounting Standards and Interpretations Several other amendments and interpretations apply for the first time in FY21, but do not have an impact on the financial report of the Group. These are as follows:        AASB 2018-6 Amendments to AASB 3 Definition of a Business AASB 2018-7 Amendments to AASB 101 and AASB 108 Definition of Material AASB 2019-3 Amendments to AASB 7, AASB 9 and AASB 139 Interest Rate Benchmark Reform on Hedge Accounting AASB 2019-1 Conceptual Framework for Financial Reporting AASB 2017-6 Amendments to Australian Accounting Standards (AASs) – Prepayment Features with Negative Compensation AASB 2020-4 Amendments to AASs - COVID-19-Related Rent Concessions AASB 2018-2 Amendments to AASs - Plan Amendment, Curtailment or Settlement In addition, in April 2021, IFRIC published an agenda decision in relation to the accounting treatment of configuration and customisation costs related to SaaS arrangements. The Group is currently assessing the impact the agenda decision will have on its current accounting policy and whether previously capitalised costs may need to be derecognised. Accordingly, the potential impact of the IFRIC agenda decision on the Group cannot be reliably estimated at the date of this report. The Group expects to complete the implementation of the above IFRIC agenda decision as part of its 31 October 2021 reporting. Metcash Group Financial Report FY21 A number of new accounting standards (including amendments and interpretations) have been issued but were not effective as at 30 April 2021. The following are the pronouncements that the in these financial Group has elected not to early adopt statements:  Amendments to AASB 101: Classification of Liabilities as Current or Non-current     Amendments Framework to AASB 3: Reference to Conceptual Amendments to AASB 116: Property, Plant and Equipment: Proceeds before Intended Use Amendments to AASB 137: Onerous Contracts – Costs of Fulfilling a Contract AASB 9 Financial Instruments: Fees in the ’10 per cent’ test for derecognition of financial liabilities The above standards are not expected to have a significant impact on the Group’s financial statements in the year of their initial application. 3. BASIS OF CONSOLIDATION Controlled entities The financial statements comprise the consolidated financial statements of Metcash Limited and its controlled entities for the year ended 30 April 2021. Refer Appendix B for a list of controlled entities. Controlled entities are all those entities over which the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Business combinations The acquisition of controlled entities is accounted for using the acquisition method of accounting. The acquisition method of accounting involves allocating the costs of the business combination to the acquisition date fair value of net assets acquired, including intangible assets, contingent liabilities and contingent consideration. Arrangements within certain business combinations entitle the non-controlling interests to require the Group to acquire their shareholding via exercise of a put option, subject to specific terms and conditions. Where such an arrangement is deemed to be part of the business combination, a financial liability is recognised on the acquisition date measured at the present value of the redemption amount under the arrangement. The initial recognition of the put option liability is charged directly to retained earnings and is derecognised. the non-controlling interest The put option liability is subsequently remeasured at each reporting date at the estimated put option exercise price, with any change in value recorded within the Statement of Comprehensive Income, together with the net present value interest unwind on the put option liability. 105 65 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 Appendix A – Summary of significant accounting policies Consolidation procedures Controlled entities are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. the consolidated financial statements, all In preparing intercompany balances and transactions have been eliminated in full. Non-controlling interests are allocated their share of total comprehensive income and are presented as a separate category within equity. The financial statements of controlled entities are prepared for the same reporting period as the parent entity, using consistent accounting policies. For those controlled entities with non- coterminous year ends, management accounts for the relevant period to the Group’s reporting date have been consolidated. In the opinion of the Directors, the expense of providing additional coterminous statutory accounts, together with consequential delay in producing the Group’s financial statements, would outweigh any benefit to shareholders. Separate financial statements Investments in entities controlled by Metcash Limited are accounted for at cost in the separate financial statements of the parent entity less any impairment charges. Dividends received from controlled entities are recorded as income in the separate financial statements of the parent entity, and do not impact the recorded cost of the investment unless the dividends effectively represent a return of capital. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries. It is also used to record the effect of hedging net investments in foreign operations. 4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS incorporated judgements, estimates and The Group has assumptions specific to the impact of the COVID-19 pandemic in determining the amounts recognised in the financial statements based on conditions existing at balance date, recognising uncertainty still exists in relation to the duration of the COVID-19 pandemic-related restrictions, the anticipated government stimulus and regulatory actions. (a) Significant accounting judgements In the process of applying the Group’s accounting policies, the following judgements were made, apart from those involving estimations, which have a significant effect on the amounts recognised in the financial statements. Charge-through sales In addition to warehouse purchases, customers purchase goods through the Group’s charge-through platform and have these goods delivered directly to them from suppliers. The Group earns a margin on these sales for providing procurement, cross- docking and settlement services. The Group also bears credit risk 106 Metcash Annual Report 2021 Metcash Group Financial Report FY21 on the receivables from these sales with limited recourse to suppliers. The Group determined that it is an agent in these contracts as it does not control the goods before they are being transferred to customers. Assessment of control and joint control Determining the existence of control, joint control or significant influence over the Group’s acquisitions. Where the Group exercises significant influence or joint control, the acquisitions are accounted for as joint arrangements (refer Appendix A.7); and where the Group exercises control, the acquisitions are accounted for as business combinations (refer Appendix A.3). Supplier income The recognition and measurement of supplier income requires the use of judgement, due to a high degree of variability and complexity in arrangements with suppliers, and due to timing differences between stock purchases and the provision of promotional services. Purchase price allocation Determining the acquisition date fair value of assets acquired and liabilities assumed on acquisition of controlled entities. Valuation of put options Determining consideration. the Total Tools and Ritchies put option Determination of lease term of contracts with renewal options The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. After initial recognition, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew. (b) Significant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Impairment of goodwill The Group determines whether goodwill is impaired on an annual basis. This requires an estimation of the recoverable amount of the cash generating units to which the goodwill is allocated. The assumptions used in this estimation of the recoverable amount and the carrying amount of goodwill are discussed in note 10. 66 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 Appendix A – Summary of significant accounting policies Property provisions The Group recognises provisions for rental agreements on acquisition (refer note 12 for further discussion). In measuring these provisions, assumptions are made about future retail sales, rental costs and in determining the appropriate discount rate to be used in the cash flow calculations. The Group has recognised a provision in accordance with the accounting policy described in Appendix A.14. The Group assesses obligations on property make-good, restructuring and other costs. These estimates are determined using assumptions on property-related costs, redundancy and other closure or restructure costs. Impairment of equity-accounted investments The Group assesses the recoverable amount of its equity- accounted investments when objective evidence of impairment is identified. In assessing the recoverable amount, assumptions are made about the growth prospects of the investment and in determining the discount rate used to calculate the net present value of future cash flows when a discounted cash flow model is used. Provision for expected credit losses (ECL) of receivables The Group uses a provision rate matrix to calculate ECLs for receivables. The provision rates are initially based on the Group’s historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forward-looking information (e.g., any known changes in market conditions with reference to the most recent gross domestic product data). At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed. The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group’s historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. 5. TRADE AND OTHER RECEIVABLES Trade receivables are measured at the transaction price determined under Appendix A.17. The Group recognises an allowance for impairment loss based on ECL for its trade and other receivables. The Group has established a provision matrix, under the simplified approach in calculating ECL, that is based on its historical credit loss experience, adjusted for forward-looking factors specific to a group of debtors and the economic environment. Metcash Group Financial Report FY21 6. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are initially recognised at fair value on the date at which a derivative contract is entered into and are subsequently remeasured to fair value. The fair value of derivative contracts is determined by reference to market values for similar instruments. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Any gains or losses arising from changes in the fair value of derivatives, except for those that qualify as cash flow hedges, are taken directly to profit or loss for the year. Instruments that meet the strict criteria for hedge accounting are classified as:   fair value hedges, when they hedge the exposure to changes in the fair value of a recognised asset or liability; or cash flow hedges, when they hedge the exposure to variability in cash flows that is attributable either to a particular risk associated with a recognised asset or liability or to a forecast transaction. Fair value hedges The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognised in the income statement as finance costs. is derecognised, the unamortised fair value is recognised immediately in profit or loss. If the hedged item When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in the profit and loss. Cash flow hedges The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income and carried forward to the cash flow hedge reserve, while any ineffective portion is recognised immediately in the income statement as finance costs. Amounts recognised as other comprehensive income are transferred to profit or loss when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or non- financial recognised as other comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability. the amounts liability, If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognised in equity is transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognised in other comprehensive income remains in other comprehensive income until the forecast transaction or firm commitment affects profit or loss. 107 67 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 For the year ended 30 April 2021 Appendix A – Summary of significant accounting policies Appendix A – Summary of significant accounting policies Cash flow hedge reserve Cash flow hedge reserve The cash flow hedge reserve records the portion of the The cash flow hedge reserve records the portion of the unrealised gain or loss on a hedging instrument in a cash flow unrealised gain or loss on a hedging instrument in a cash flow hedge that is determined to be an effective hedge. hedge that is determined to be an effective hedge. Current versus non-current classification Current versus non-current classification Derivative instruments are classified as current or non-current or Derivative instruments are classified as current or non-current or separated into current and non-current portions based on an separated into current and non-current portions based on an assessment of the facts and circumstances including the assessment of the facts and circumstances including the underlying contracted cash flows. underlying contracted cash flows. EQUITY-ACCOUNTED INVESTMENTS EQUITY-ACCOUNTED INVESTMENTS 7. 7. The Group’s investments in joint ventures and associates are The Group’s investments in joint ventures and associates are accounted for using the equity method. Associates are those accounted for using the equity method. Associates are those entities over which the Group exercises significant influence, but entities over which the Group exercises significant influence, but not control or joint control, over the financial and operating not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Group policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets has joint control, whereby the Group has rights to the net assets of the joint venture. Joint control is the contractually agreed of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous decisions about the relevant activities require unanimous consent of the parties sharing control. consent of the parties sharing control. Equity-accounted investments are carried in the statement of Equity-accounted investments are carried in the statement of financial position at cost plus post-acquisition changes in the financial position at cost plus post-acquisition changes in the Group’s share of net assets of the investee, less any impairment Group’s share of net assets of the investee, less any impairment in value. in value. For those associates and joint ventures with non-coterminous For those associates and joint ventures with non-coterminous year ends, management accounts for the relevant period to the year ends, management accounts for the relevant period to the Group’s reporting date have been equity-accounted. In the Group’s reporting date have been equity-accounted. In the opinion of the Directors, the expense of providing additional opinion of the Directors, the expense of providing additional coterminous statutory accounts, together with consequential coterminous statutory accounts, together with consequential delay in producing the Group’s financial statements, would delay in producing the Group’s financial statements, would outweigh any benefit to shareholders. outweigh any benefit to shareholders. INVENTORIES INVENTORIES 8. 8. Inventory cost is measured at purchase price, net of trade Inventory cost is measured at purchase price, net of trade rebates and discounts received, and including costs incurred in rebates and discounts received, and including costs incurred in bringing the inventory to its present location and condition. bringing the inventory to its present location and condition. Trade rebates include non-volumetric supplier income, which is Trade rebates include non-volumetric supplier income, which is systematically allocated against inventory cost using estimates systematically allocated against inventory cost using estimates based on expected purchase patterns and earn rates. based on expected purchase patterns and earn rates. Inventories are valued at the lower of cost or net realisable value. Inventories are valued at the lower of cost or net realisable value. Net realisable value is the estimated selling price in the ordinary Net realisable value is the estimated selling price in the ordinary course of business, net of estimated costs necessary to make the course of business, net of estimated costs necessary to make the sale. sale. PROPERTY, PLANT AND EQUIPMENT PROPERTY, PLANT AND EQUIPMENT 9. 9. Recognition and measurement Recognition and measurement All classes of property, plant and equipment are measured at All classes of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated cost less accumulated depreciation and any accumulated impairment losses. impairment losses. Depreciation Depreciation Depreciation is provided on a straight-line basis on all property, Depreciation is provided on a straight-line basis on all property, plant and equipment, other than freehold land and assets under plant and equipment, other than freehold land and assets under construction. Major depreciation periods are: construction. Major depreciation periods are: 108 Metcash Annual Report 2021 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 Freehold buildings Freehold buildings Plant and equipment Plant and equipment FY21 FY21 25-40 years 25-40 years 2-20 years 2-20 years FY20 FY20 25-40 years 25-40 years 2-20 years 2-20 years Derecognition Derecognition An item of property, plant and equipment is derecognised upon An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to disposal or when no future economic benefits are expected to arise from the continued use of the asset. arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the as the difference between the net disposal proceeds and the carrying amount of the item) is included in the statement of carrying amount of the item) is included in the statement of comprehensive income in the period the item is derecognised. comprehensive income in the period the item is derecognised. is is in a business combination in a business combination INTANGIBLE ASSETS 10. 10. INTANGIBLE ASSETS Recognition and measurement Recognition and measurement in a business Intangible assets acquired separately or in a business Intangible assets acquired separately or combination are initially measured at cost. Following initial combination are initially measured at cost. Following initial recognition, the cost model is applied to the class of intangible recognition, the cost model is applied to the class of intangible assets. assets. Intangible assets (excluding software development costs) Intangible assets (excluding software development costs) created within the business are not capitalised and expenditure created within the business are not capitalised and expenditure is charged against profits in the period in which the expenditure is charged against profits in the period in which the expenditure is incurred. is incurred. initially Goodwill acquired initially Goodwill acquired measured at cost; being the excess of the cost of the business measured at cost; being the excess of the cost of the business combination over the Group’s interest in the net fair value of the combination over the Group’s interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities. acquiree's identifiable assets, liabilities and contingent liabilities. Trade names are acquired either through business combinations Trade names are acquired either through business combinations or through direct acquisition. Trade names are recognised as or through direct acquisition. Trade names are recognised as intangible assets where a registered trademark is acquired with intangible assets where a registered trademark is acquired with attributable value. Trade names are valued on a relief from attributable value. Trade names are valued on a relief from royalty method. Trade names are considered to be indefinite life royalty method. Trade names are considered to be indefinite life intangibles and are not amortised, unless there is an intention to intangibles and are not amortised, unless there is an intention to discontinue use of the name in which case it is amortised over its discontinue use of the name in which case it is amortised over its estimated remaining useful life. estimated remaining useful life. through business Customer through business Customer combinations. Customer contacts are recognised as intangible combinations. Customer contacts are recognised as intangible assets when the criteria specified in AASB 138 Intangible Assets assets when the criteria specified in AASB 138 Intangible Assets have been met. Customer contracts are valued by applying a have been met. Customer contracts are valued by applying a discounted cash flow valuation methodology with consideration discounted cash flow valuation methodology with consideration given to customer retention and projected future cash flows to given to customer retention and projected future cash flows to the end of the contract period. The amortisation has been the end of the contract period. The amortisation has been recognised in the statement of comprehensive income. recognised in the statement of comprehensive income. Software development costs incurred on an individual project Software development costs incurred on an individual project are capitalised at cost when future recoverability can reasonably are capitalised at cost when future recoverability can reasonably be assured and where the Group has an intention and ability to be assured and where the Group has an intention and ability to use the asset. Following the initial recognition of software use the asset. Following the initial recognition of software development costs, the asset is carried at cost less any development costs, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. accumulated amortisation and accumulated impairment losses. Any costs carried forward are amortised over the assets’ useful Any costs carried forward are amortised over the assets’ useful economic lives. economic lives. contracts contracts acquired acquired are are 68 68 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 Appendix A – Summary of significant accounting policies Derecognition Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of comprehensive income when the asset is derecognised. When goodwill forms part of a group of cash generating units and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the groups of cash- generating units retained. Useful lives The useful lives of these intangible assets are assessed to be either finite or indefinite. Where amortisation is charged on assets with finite lives, this expense is taken to the profit or loss on a straight-line basis. The estimated useful lives of existing finite life intangible assets are as follows: FY21 FY20 Customer contracts Software development costs Other 15 years 5-10 years 10 years 15 years 5-10 years 10 years market assessments of the time value of money and the risks specific to the asset Impairment Comprehensive Income. losses are recognised in the Statement of 12. EMPLOYEE LEAVE BENEFITS Wages, salaries, incentives, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, incentives, annual leave and accumulating sick leave, are recognised in provisions in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Liabilities due to be settled within 12 months of the reporting date are classified as current liabilities. Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates paid or payable. Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments at the reporting date are discounted using market yields on high-quality corporate bonds with terms to maturity that match as closely as possible, the estimated future cash outflows. Useful lives are reassessed on an annual basis and adjustments, where applicable, are made on a prospective basis. 13. INTEREST-BEARING BORROWINGS 11. IMPAIRMENT OF NON-FINANCIAL ASSETS At each reporting date, the Group assesses whether there is any indication that the value of a non-financial asset may be impaired. Goodwill and indefinite life intangible assets are tested for impairment at least annually and more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of a non-financial asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets. In this case, the recoverable amount is determined for the cash-generating unit (CGU) to which the asset belongs. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated pre-tax future cash flows are discounted to their present value using a pre-tax discount rate that reflects current All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowing. initial recognition, interest-bearing borrowings are After subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the liabilities are derecognised. 14. PROVISIONS Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are measured at the net present value of the expected future cash outflows using a current pre-tax rate that reflects the risks specific to the liability. During each period the provision is increased by an amount that is equal to the provision multiplied by the discount rate. This increment, including any change in the value of the provision as a result of a change in discount rate, is treated as a finance cost. Metcash Group Financial Report FY21 109 69 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 Appendix A – Summary of significant accounting policies The Group assesses obligations for onerous contracts, lease guarantees, property make-good, restructuring and other costs. These estimates are determined using assumptions on property related costs, redundancy and other closure or restructure costs. 15. RIGHT-OF-USE ASSETS, LEASE RECEIVABLES AND LEASE LIABILITIES Group as a lessee Right-of-use assets The Group recognises right-of-use assets at the commencement of a lease (i.e., the date the underlying asset is available for use). The initial measurement of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date, less any lease incentives received. Right- of-use assets are subsequently measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment assessments under AASB 136 Impairment of Assets. Depreciation Depreciation is provided on a straight-line basis on all right-of- use assets. Major depreciation periods are: FY21 FY20 Leasehold properties Motor vehicles and other equipment 1-30 years 4-5 years 1-30 years 4-5 years Useful lives are reassessed on an annual basis and adjustments, where applicable, are made on a prospective basis. Lease liabilities At the commencement of a lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable and amounts expected to be paid under residual value guarantees. The lease payments also include renewal periods where the Group is reasonably certain to exercise the renewal option. Outgoings and other variable lease payments that do not depend on an index or a rate are recognised as incurred. the the rate at incremental borrowing In calculating the present value of lease payments, the Group uses lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. 110 Metcash Annual Report 2021 Metcash Group Financial Report FY21 Group as a lessor The Group enters into back-to-back lease agreements with independent retailers where the terms of the lease transfer substantially all the risks and rewards of ownership to the sublessee and these are classified as a finance lease. Amounts due from finance leases are recognised as lease receivables at the amount of the Group’s net investment in the lease. Lease receivables are subsequently remeasured if there is a change in the lease term. Finance lease income is allocated to reporting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases. All other leases are classified as operating leases. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Short-term leases and leases of low-value assets The Group applies a recognition exemption to leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. It also applies a recognition exemption to leases that are considered of low value. Lease payments and rental income from short-term and low- value leases are recognised on a straight-line basis over the lease term. 16. SHARE-BASED PAYMENT TRANSACTIONS The Group provides a portion of senior executive and key employee share-based remuneration as payments, in the form of performance rights. equity-settled The value of the performance rights issued is determined on the date which both the employee and the Group understand and agree to the share-based payment terms and conditions (grant date). The value at grant date is based upon the fair value of a similar arrangement between the Group and an independent third party and is determined using an appropriate valuation model. The fair value does not consider the impact of service or performance conditions, other than conditions linked to the share price of Metcash Limited (market conditions). Details of the valuation models used and fair values for each tranche of performance rights issued are outlined in note 19. (vesting date). This expense The fair value of performance rights is recognised as an expense, together with a corresponding increase in the share-based payments reserve within equity, over the period between grant date and the date on which employee becomes fully entitled to the award recognised cumulatively by estimating the number of performance rights expected to vest. This opinion is formed based on the best available information at the reporting date. No adjustment is made for the likelihood of market conditions being met as the effect of these conditions is included in the determination of fair value at grant date. Where the performance rights are cancelled, any expense not yet recognised for the award is recognised immediately. is The dilutive effect, if any, of outstanding performance rights are reflected as additional share dilution in the computation of earnings per share. 70 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 Appendix A – Summary of significant accounting policies Share-based payments reserve The share-based payments reserve is used to record the value of equity benefits provided to executives as part of their remuneration. Refer to note 19 for further details of these plans. Once a performance right has lapsed the Group no longer has any obligation to convert these performance rights into share capital. The amount transferred to retained earnings represents the value of share-based payments previously recognised as an expense that have subsequently lapsed. 17. REVENUE RECOGNITION Sale of goods The Group’s revenue principally arises from the sale of goods within its wholesale distribution and retail operations, as outlined in note 2. Sales revenue is recognised when the Group has delivered goods to its customers, and it is probable that consideration will be collected is measured based on the consideration expected to be received, net of volumetric and other trade rebates. in exchange. Revenue Charge-through sales The Group operates a charge-through platform whereby goods are delivered directly to the Group’s customers by suppliers. The Group retains the credit risk associated with these transactions; however, the Group does not bear any material inventory risk or exercise any material discretion in establishing prices. Charge- through transactions are therefore reported on an agency or net ‘commission’ basis. 18. FINANCE COSTS to Finance costs directly attributable the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other finance costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Certain provisions are measured at their discounted value. During each period the provision is increased by an amount that is equal to the provision multiplied by the discount rate. This increment, including any change in the value of the provision as a result of a change in discount rate, is treated as a finance cost. 19. INCOME TAX Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authority. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the relevant reporting date. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised: Metcash Group Financial Report FY21    except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. 20. EARNINGS PER SHARE Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share are calculated as net profit attributable to members of the parent, adjusted for:    costs of servicing equity (other than dividends); the after-tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares, divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. 21. COMPARATIVE INFORMATION information was amended Certain comparative in these financial statements to conform to the current year presentation. These amendments do not impact the Group’s financial results and do not have any significant impact on the Group’s balance sheet. 111 71 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 For the year ended 30 April 2021 Appendix B – Information on subsidiaries Appendix B – Information on subsidiaries Metcash Limited is the ultimate parent entity of the Group. The consolidated financial statements include the financial statements Metcash Limited is the ultimate parent entity of the Group. The consolidated financial statements include the financial statements of Metcash Limited and the subsidiaries listed in the following table. All entities are incorporated in Australia except where specifically of Metcash Limited and the subsidiaries listed in the following table. All entities are incorporated in Australia except where specifically identified. identified. Entities within the Closed Group Entities within the Closed Group Action Holdings Pty Ltd Action Holdings Pty Ltd Action Supermarkets Pty Ltd Action Supermarkets Pty Ltd Australian Asia Pacific Wholesalers Pty Ltd Australian Asia Pacific Wholesalers Pty Ltd Australian Hardware Distributors Pty. Limited Australian Hardware Distributors Pty. Limited Australian Hardware Support Services Pty Ltd Australian Hardware Support Services Pty Ltd Australian Liquor Marketers (QLD) Pty Ltd Australian Liquor Marketers (QLD) Pty Ltd Australian Liquor Marketers (WA) Pty Ltd Australian Liquor Marketers (WA) Pty Ltd Australian Liquor Marketers Pty. Limited Australian Liquor Marketers Pty. Limited Big Bargain Bottleshops Australia Pty Ltd Big Bargain Bottleshops Australia Pty Ltd Capeview Hardware Pty Ltd Capeview Hardware Pty Ltd City Ice & Cold Storage Company Proprietary City Ice & Cold Storage Company Proprietary Limited Limited Clancy’s Food Stores Pty Limited Clancy’s Food Stores Pty Limited Composite Buyers Finance Pty Ltd Composite Buyers Finance Pty Ltd Composite Buyers Pty Limited Composite Buyers Pty Limited Community Co Australia Pty Ltd Community Co Australia Pty Ltd Danks Holdings Pty Limited Danks Holdings Pty Limited Davids Foodservices Pty Ltd Davids Foodservices Pty Ltd Davids Group Staff Superannuation Fund Pty. Ltd. Davids Group Staff Superannuation Fund Pty. Ltd. Echuca Hardware Pty Ltd Echuca Hardware Pty Ltd Foodland Properties Pty Ltd Foodland Properties Pty Ltd Foodland Property Holdings Pty Ltd Foodland Property Holdings Pty Ltd Franklins Pty Ltd Franklins Pty Ltd Franklins Supermarkets Pty Ltd Franklins Supermarkets Pty Ltd Fresco Supermarket Holdings Pty Ltd Fresco Supermarket Holdings Pty Ltd Garden Fresh Produce Pty Ltd Garden Fresh Produce Pty Ltd G Gay Hardware Pty Ltd G Gay Hardware Pty Ltd Global Liquor Wholesalers Pty Limited Global Liquor Wholesalers Pty Limited Hammer Hardware Stores Pty Ltd Hammer Hardware Stores Pty Ltd Hardings Hardware Pty Ltd Hardings Hardware Pty Ltd Himaco Pty Ltd Himaco Pty Ltd Home Hardware Australasia Pty Ltd Home Hardware Australasia Pty Ltd Home Timber & Hardware Group Pty Ltd Home Timber & Hardware Group Pty Ltd Homestead Hardware Australasia Pty Ltd Homestead Hardware Australasia Pty Ltd HTH Events Pty Ltd HTH Events Pty Ltd HTH Stores Pty Limited HTH Stores Pty Limited Hudson Building Supplies Pty Limited Hudson Building Supplies Pty Limited IGA Community Chest Limited IGA Community Chest Limited IGA Distribution (SA) Pty Limited IGA Distribution (SA) Pty Limited IGA Distribution (Vic) Pty Limited IGA Distribution (Vic) Pty Limited IGA Distribution (WA) Pty Limited IGA Distribution (WA) Pty Limited IGA Fresh (Northern Queensland) Pty Limited IGA Fresh (Northern Queensland) Pty Limited IGA Fresh (NSW) Pty Limited IGA Fresh (NSW) Pty Limited IGA Retail Services Pty Limited IGA Retail Services Pty Limited Independent Brands Australia Pty Limited Independent Brands Australia Pty Limited Independent Hardware Group Pty Ltd Independent Hardware Group Pty Ltd Jewel Food Stores Pty Ltd Jewel Food Stores Pty Ltd K&B Timber and Hardware Pty Ltd. K&B Timber and Hardware Pty Ltd. (previously Banner 10 Pty Ltd) (previously Banner 10 Pty Ltd) Keithara Pty Ltd Keithara Pty Ltd 112 Metcash Annual Report 2021 Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 FY21 FY21 % % FY20 FY20 % % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Liquor Traders Pty Ltd Liquor Traders Pty Ltd Liquorsmart Pty Ltd Liquorsmart Pty Ltd M-C International Australia Pty Limited M-C International Australia Pty Limited Mega Property Management Pty Ltd Mega Property Management Pty Ltd Mermaid Tavern (Trading) Pty Ltd Mermaid Tavern (Trading) Pty Ltd Metcash Food & Grocery Convenience Division Metcash Food & Grocery Convenience Division Pty Limited Pty Limited Metcash Food & Grocery Pty Ltd Metcash Food & Grocery Pty Ltd Metcash Holdings Pty Ltd Metcash Holdings Pty Ltd Metcash Management Pty Limited Metcash Management Pty Limited Metcash Services Proprietary Limited Metcash Services Proprietary Limited Metcash Storage Pty Limited Metcash Storage Pty Limited Metcash Trading Limited Metcash Trading Limited Metro Cash & Carry Pty Limited Metro Cash & Carry Pty Limited Mirren (Australia) Pty Ltd Mirren (Australia) Pty Ltd Mitre 10 Australia Pty Ltd Mitre 10 Australia Pty Ltd Mitre 10 Mega Pty Ltd Mitre 10 Mega Pty Ltd Mitre 10 Pty Ltd Mitre 10 Pty Ltd Narellan Hardware Pty Ltd Narellan Hardware Pty Ltd National Retail Support Services Pty Ltd National Retail Support Services Pty Ltd Payless Superbarn (N S W) Pty Ltd Payless Superbarn (N S W) Pty Ltd QIW Pty Limited QIW Pty Limited Queensland Independent Wholesalers Pty Queensland Independent Wholesalers Pty Limited Limited Quickstop Pty Ltd Quickstop Pty Ltd Roma Hardware Pty Ltd Roma Hardware Pty Ltd SE Hardware Pty Limited SE Hardware Pty Limited South Coast Operations Pty Ltd South Coast Operations Pty Ltd South West Operations Pty Ltd South West Operations Pty Ltd Thrifty-Link Hardware Pty Ltd Thrifty-Link Hardware Pty Ltd Timberten Pty Ltd Timberten Pty Ltd UIAL NSW/ACT Pty Ltd UIAL NSW/ACT Pty Ltd UIAL Tasmania Pty Ltd UIAL Tasmania Pty Ltd Vawn No 3 Pty Ltd Vawn No 3 Pty Ltd W.A. Hardware Services Pty. Ltd W.A. Hardware Services Pty. Ltd Entities outside of the Closed Group Entities outside of the Closed Group Central Timber 10 Pty Ltd Central Timber 10 Pty Ltd Faggs Geelong Pty Ltd Faggs Geelong Pty Ltd Finlayson Installations Pty Ltd Finlayson Installations Pty Ltd Finlayson Timber & Hardware Pty Ltd Finlayson Timber & Hardware Pty Ltd Foodland Property Unit Trust Foodland Property Unit Trust Feldman Tools Pty Ltd1 Feldman Tools Pty Ltd1 Futura Machinery Sales and Service Pty Ltd1 Futura Machinery Sales and Service Pty Ltd1 Gympie Property Investment Pty Ltd Gympie Property Investment Pty Ltd Hardware Property Trust Hardware Property Trust IGA Retail Network Limited IGA Retail Network Limited Liquor Centres Auckland Limited (incorporated Liquor Centres Auckland Limited (incorporated in New Zealand) in New Zealand) FY21 FY21 % % 100 100 100 100 100 100 100 100 - - 100 100 FY20 FY20 % % 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 50 90 90 100 100 100 100 100 100 42 42 42 42 84.7 84.7 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 50 90 90 - - - - 100 100 - - - - 84.7 84.7 100 100 100 100 - - 72 72 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 Appendix B – Information on subsidiaries Metoz Holding Limited (incorporated in South Africa) (In liquidation) Mitre 10 Mega Property Trust NFRF Developments Pty Ltd Northern Hardware Group Pty Ltd Nu Fruit Pty. Ltd. Produce Traders Trust Rainbow Unit Trust Rainfresh Vic Pty Ltd Retail Merchandise Services Pty Limited Sunshine Hardware Pty Ltd Tasman Liquor Company Limited (incorporated in New Zealand) Tasmania Hardware Pty Ltd Timber and Hardware Exchange Pty Ltd Total Tools (Importing) Pty Ltd Total Tools Commercial Pty Ltd Total Tools Holdings Pty Ltd Total Tools Industrial Pty. Limited FY21 % 100 FY20 % 100 100 51 84.7 51 100 100 51 100 84.7 100 80 68.4 70 70 70 70 100 51 84.7 51 100 100 51 100 84.7 100 80 68.4 - - - - Total Tools Licensing Pty Ltd Total Tools Moorabbin Store Pty Ltd Total Tools New Zealand Limited Total Tools Online Pty Ltd Total Tools Stores Pty Ltd TT Brookvale Pty Ltd Total Tools Fyshwick Pty Ltd1 Toolshack Pty Ltd1 TT Brooklyn Pty Ltd1 TT Darwin Pty Ltd1 TT Geelong Pty Ltd1 TT Melton Pty Ltd1 TT South Melbourne Pty Ltd1 TT Adelaide West Pty Ltd1 TT Mackay Pty Ltd1 Wimbledon Property Trust FY21 % FY20 % 70 70 70 70 70 70 35.7 35.7 35.7 35.7 35.7 35.7 35.7 42.0 42.0 100 - - - - - - - - - - - - - - - 100 1. The Group has an indirect ownership of between 35.7% and 42% in these entities via its interest in Total Tools Holdings Pty Ltd. While the Group has beneficial ownership of less than 50% of these entities, the Group has control over key operating and financial decisions in these entities. Accordingly, these entities are accounted for as controlled entities. Entities within the closed group as at 30 April 2021 Certain controlled entities of Metcash Limited, collectively referred to as the ‘Closed Group’, are party to a Deed of Cross Guarantee which meets the requirements of ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (Instrument). Pursuant to the Instrument, entities within the Closed Group that have lodged an opt-in notice with ASIC within the requisite time limits are granted relief from standalone financial reporting and audit requirements of the Corporations Act 2001. Under the Deed of Cross Guarantee, the entities within the Closed Group, including Metcash Limited, have guaranteed to pay any outstanding debts or claims in the event of a winding up of any other entity within the Closed Group. Summary Statement of Comprehensive Income of the Closed Group Distributions from subsidiaries outside the Closed Group Other net income Significant items Profit before income tax Income tax expense Net profit/(loss) for the year FY21 $m 4.6 302.7 (17.0) 290.3 (88.6) 201.7 FY20 $m 3.9 265.3 (268.5) 0.7 (66.2) (65.5) Metcash Group Financial Report FY21 113 73 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 Appendix B – Information on subsidiaries Summary Statement of Financial Position of the Closed Group Assets Cash and cash equivalents Trade receivables and loans Lease receivables Inventories Other current assets Total current assets Investments Lease receivables Property, plant and equipment Net deferred tax assets Intangible assets and goodwill Right-of-use assets Other non-current assets Total non-current assets Total assets Liabilities Trade and other payables Lease liabilities Income tax payable Provisions Put options and other financial liabilities Total current liabilities Interest-bearing borrowings Lease liabilities Amounts due to related parties Provisions Put options and other financial liabilities Total non-current liabilities Total liabilities FY21 $m 76.7 1,519.3 41.1 874.7 12.0 2,523.8 318.1 236.8 191.3 114.5 562.1 551.2 15.7 1,989.7 4,513.5 1,940.5 129.9 22.3 126.7 20.8 2,240.2 - 831.3 22.7 41.7 124.6 1,020.3 3,260.5 FY20 $m 251.8 1,528.3 55.6 976.3 12.1 2,824.1 189.0 239.1 185.8 115.8 520.1 457.7 25.7 1,733.2 4,557.3 1,986.4 165.4 1.8 109.0 7.2 2,269.8 188.4 690.9 41.6 56.6 2.1 979.6 3,249.4 Net assets 1,253.0 1,307.9 Equity Contributed and other equity 1 May Equity raised, net of costs Contributed and other equity, 30 April Other reserves Retained profits/(accumulated losses) Opening balance, 30 April (as previously stated) Changes from the initial adoption of the new accounting standards Opening balance, 1 May (restated) Recognition of put option liability Share of associate’s adjustment on initial adoption of AASB 16 Leases Net profit/(loss) for the year Dividends paid Closing balance Total equity 114 Metcash Annual Report 2021 Metcash Group Financial Report FY21 853.5 13.5 867.0 (1.7) 456.7 - 456.7 (113.4) (9.0) 201.7 (148.3) 387.7 1,253.0 559.2 294.3 853.5 (2.3) 642.0 (1.6) 640.4 - - (65.5) (118.2) 456.7 1,307.9 74 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Notes to the Financial Statements Notes to the Financial Statements For the year ended 30 April 2021 Appendix C – Equity-accounted investments Equity-accounted investments of the Group represent both associates and joint ventures and are structured through equity participation in separate legal entities. Metcash invests capital to support the independent retail network, strengthen relationships and fund growth. Relationships with co-investors are governed by contractual agreements which allow the Group to exercise either significant influence or joint control over these entities. Where the Group exercises joint control, all key operating decisions are agreed unanimously, regardless of ownership interest. The principal place of business for all of the Group’s equity-accounted investments is Australia, with the exception of Metcash Export Services Pty Ltd, which primarily deals with customers in China. The following table presents key information about the Group’s interests in joint ventures and associates. Investee Associates Ritchies Stores Pty Ltd Dramet Holdings Pty Ltd Metcash Export Services Pty Ltd Joint ventures Adcome Pty Ltd BMS Retail Group Holdings Pty Ltd Waltock Pty Limited LA United Pty Ltd1 Liquor Alliance Pty Ltd1 Principal activities Reporting date Grocery retailing Grocery retailing Grocery retailing Grocery retailing Grocery retailing Hardware retailing Liquor wholesaling Liquor wholesaling 30 June 30 June 30 April 30 April 30 June 30 June 30 June 30 June FY21 % 26.4 26.0 15.0 45.0 49.0 49.0 75.3 66.7 FY20 % 26.0 26.0 15.0 45.0 49.0 49.0 75.3 66.7 1. The Group has a direct ownership of 26.0% in LA United Pty Ltd, an indirect ownership of 49.3% via its interest in Liquor Alliance Pty Ltd. While the Group has beneficial ownership of more than 50% of the entity, key operating and financial decisions require the unanimous consent of other joint venture partners. Accordingly, LA United Pty Ltd and Liquor Alliance Pty Ltd are accounted for as joint arrangements. Metcash Group Financial Report FY21 115 75 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Directors’ Declaration For the year ended 30 April 2021 Directors’ Declaration In accordance with a resolution of the directors of Metcash Limited, I state that: 1. In the opinion of the directors: a. The financial statements, notes and the additional disclosures included in the directors’ report designated as audited, of Metcash Limited are in accordance with the Corporations Act 2001, including: i. Giving a true and fair view of the consolidated entity’s financial position as at 30 April 2021 and of its performance for the year ended on that date; and ii. Complying with Accounting Standards (including the Australian Accounting Interpretations) and Corporations Regulations 2001; b. The financial statements and notes also comply with International Financial Reporting Standards as disclosed in Appendix A.2; and c. There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 April 2021. 3. In the opinion of the directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the Closed Group identified in Appendix B will be able to meet any obligation or liabilities to which they are or may become subject, by virtue of the Deed of Cross Guarantee. On behalf of the Board Jeff Adams Director Sydney, 28 June 2021 116 Metcash Annual Report 2021 Metcash Group Financial Report FY21 76 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au  A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Metcash Group Financial Report FY21 Metcash Group Financial Report FY21 117 83 77 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 118 Metcash Annual Report 2021 Metcash Group Financial Report FY21 78 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us ► ► ► ► ► ► A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Metcash Group Financial Report FY21 119 79 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information ► ► ► ► ► ► A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 120 Metcash Annual Report 2021 Metcash Group Financial Report FY21 80 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us ► ► ► ► ► A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Metcash Group Financial Report FY21 121 81 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information      A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 122 Metcash Annual Report 2021 Metcash Group Financial Report FY21 82 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout Us  56 to 71 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Metcash Group Financial Report FY21 123 83 Sustainability ReportOur People & Our BoardFinancial ReportDirectors’ ReportOther Information ASX Information Additional information required by the Australian Securities Exchange and not shown elsewhere in this report is as follows. The information is current as at 30 June 2021: DISTRIBUTION OF EQUITY SECURITIES The number of shareholders, by size of holding, in each class of share is: Size of holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Number of shareholders Percentage of shares 7,028 9,055 3,385 2,751 110 22,329 0.37% 2.34% 2.47% 6.19% 88.63% 100.00% There were 760 shareholders holding less than a marketable parcel of Metcash ordinary shares. TWENTY LARGEST HOLDERS OF QUOTED SHARES The names of the 20 largest holders of quoted shares are: Name HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA PTY LIMITED CITICORP NOMINEES PTY LIMITED NATIONAL NOMINEES LIMITED BNP PARIBAS NOMINEES PTY LTD BNP PARIBAS NOMS PTY LTD CITICORP NOMINEES PTY LIMITED HSBC CUSTODY NOMINEES BNP PARIBAS NOMINEES PTY LTD SIX SIS LTD UBS NOMINEES PTY LTD NAVIGATOR AUSTRALIA LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED BUTTONWOOD NOMINEES PTY LTD POWERWRAP LIMITED HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED BNP PARIBAS NOMS (NZ) LTD CERTANE CT PTY LTD BNP PARIBAS NOMS PTY LTD UBS NOMINEES PTY LTD Total SUBSTANTIAL SHAREHOLDERS The following is extracted from the Company’s register of substantial shareholders: Pendal Group Limited Allan Gray Australia Pty Ltd The Vanguard Group, Inc State Street Corporation VOTING RIGHTS All ordinary shares (whether fully paid or not) carry one vote per share without restriction. Number of shares Percentage of shares 396,918,993 187,655,733 144,906,365 70,962,218 17,282,775 16,575,099 15,106,070 5,654,398 3,518,256 3,269,001 3,237,213 2,617,030 2,366,603 2,107,336 1,779,825 1,775,721 1,639,463 1,630,417 1,397,322 1,393,191 38.82% 18.36% 14.17% 6.94% 1.69% 1.62% 1.48% 0.55% 0.34% 0.32% 0.32% 0.26% 0.23% 0.21% 0.17% 0.17% 0.16% 0.16% 0.14% 0.14% 881,793,029 86.25% Number of shares 124,012,070 107,130,944 61,420,001 51,804,192 124 Metcash Annual Report 2021 Chairman’s ReportCEO’s ReportStrategic DirectionFinancial HighlightsFoodLiquorHardwareAbout UsCorporate Information Directors’ Report Financial Report Other Information Metcash Food (Head Office) 1 Thomas Holt Drive Macquarie Park NSW 2113 PO Box 557 Macquarie Park NSW 1670 Telephone: 61 2 9741 3000 Australian Liquor Marketers (Head Office) 1 Thomas Holt Drive Macquarie Park NSW 2113 PO Box 557 Macquarie Park NSW 1670 Telephone: 61 2 9741 3000 Independent Hardware Group (Head Office) 19 Corporate Drive Heatherton VIC 3202 Telephone: 1300 880 440 Corporate Governance A copy of the Corporate Governance Statement can be found on our website. Visit www.metcash.com/corporateinformation/corporate-governance Directors Jeff Adams (Group CEO) Peter Birtles Tonianne Dwyer Christine Holman Murray Jordan Robert Murray (Chair) Helen Nash Company Secretary Julie Hutton Share Register Boardroom Pty Limited GPO Box 3993 Sydney NSW 2001 Freecall: 1800 655 325 Telephone: 61 2 9290 9600 Auditor Ernst & Young 200 George Street Sydney NSW 2000 Australia Telephone: 61 2 9248 5555 Metcash Limited ABN 32 112 073 480 1 Thomas Holt Drive Macquarie Park NSW 2113 PO Box 557 Macquarie Park NSW 1670 Telephone: 61 2 9741 3000 Food Liquor Hardware 125 Sustainability ReportOur People & Our Boardlove your local 

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