Alpine Truss Pty Ltd (MG9.F) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Metcash Announcement of Acquisitions and Equity Raising Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Doug Jones, CEO. Please go ahead.

Thanks very much, and good morning, everybody. This is Doug Jones, Group CEO of Metcash. I'm really excited to be sharing some interesting transactions with you this morning. You would have had our ASX release and the slides. And I'm sure you would have studied those. I'm going to make a few opening comments. I'm going to point you to a few highlights. I'll try and keep you going by pointing out, which slide I'm referring to. And then, of course, the opportunity for some questions. So by way of introduction on Slide 7, these are 3 very exciting transactions for us today at Metcash today. They represent a significant milestone in our company's history. They continue the transformation towards being a bigger, more resilient, more stronger business with much better growth prospects. And they have the potential to step change that trajectory. In summary, these are all on strategy acquisitions and they're compelling. We're buying them well. They're conservatively funded, and we believe they offer great synergies that we have got a high conviction in extracting. At Metcash, we've got the track record and the experience and the capability to handle these. We know all 3 of these companies well. We've done an enormous amount of diligence on them, and that's allowed us not only to value them but to prepare to extract those synergies. And we believe that presents a wonderful opportunity to create value for our shareholders. Superior Food is a large national distributor to the foods service industry. It means that Metcash is now the largest supplier of food and liquor to all independent businesses across Australia. Bianco Construction Supplies is a South Australia-based supplier of construction and industrial products to the South Australia and Northern Territory markets. And Alpine Truss is one of the country's largest Frame & Truss operators based in Victoria. And both of these hardware transactions further our Whole of House strategy, which allows us to establish a relationship with our builder customers at the site of the project and therefore capture a larger share of their total spend. I do want to point out and remind you of our purpose, which is championing successful independence in support of thriving communities. These transactions are well aligned with this purpose. I've described this -- I describe it as we know independents, and we know them well. It's what we do. And that's not just cultural, but from an operating model and a supply chain perspective as well. As you know, I'm on record saying that independent businesses play an enormous role in society. They make a huge contribution to the economy and to the communities they serve. Superior improves our offer to our existing independent retailers. It makes our food business fundamentally better. It improves the offer to our independent retailers in range, scale and capability. It's good for our customers, and it's good for Superior's customers. Metcash improved Superior's offers to their customers, both national and local. And the addition of Bianco and Alpine to the IHG network brings a broader range of products for our existing members to offer their customers and closes out a few gaps in our offering to the independent builder customers. These transactions add volume through our networks. And as you know, through our flywheel, this is a key value driver at the heart of our operating model. In addition to compelling strategic and operational alignments that are economically attractive. They're EPS and margin accretive and they offer material synergy opportunities that we've got a high confidence in realizing and they've been concluded at attractive multiples, as I'll discuss in a few minutes. Finally, of course, we're also announcing this morning an equity raise, $300 million pro rata institutional placements and up to $25 million share purchase plan, which together with existing debt and cash, will be used to fund the acquisitions. Turning now to Slide 11. You've heard me talk about the transformation of Metcash and I just want to talk about that a little bit more, explain what I mean. So in recent years, Metcash has been transforming itself from primarily what you would call an old fashioned food and wholesale -- liquor wholesaler to an integrated wholesaler, banner operator and retailer with sustainable business models, materially improved operations and transformed retail networks and -- with healthy market positions. You'll also know that between food and hardware, these businesses make up roughly 80% of our EBIT and they contribute about the same amount to that. The transformation in food has been underpinned by the refocus on retailer sustainability and alongside that, an investment by retailers in their stores and their offerings. This is supported by a material improvement in the compliance to drive supplier reinvestments, and we've enjoyed strong support from our suppliers. All of this together has transformed the food and liquor networks in terms of quality, relevance and competitiveness. And of course, this means resilience and sustainability, too. In hardware, the additional first of Home Timber & Hardware and then Total Tools together with IHG's organic growth and continued consolidation of the fragmented market has underpinned the growth in the hardware pillar and the transition in the group. I've noted the Metcash's flywheel in each of these transaction's supports and is supported by each layer. In addition, I want to point you to Metcash's strong record of successful integration and synergy extraction. This conviction and high belief is underpinned by the fact that we have a number of replicable strategies or playbooks, you might call them. And examples include the success in entering complementary markets through Total Tools as well as IHG's proven track record of value creation acting as the natural consolidator in a highly fragmented market. We have experienced and capable management and leadership teams. You would have noted recent changes, and these reflect the investment that we've made in our capability and experience, and this is what gives us confidence, not just at the executive level, but throughout the teams. We've also got a strong track record of disciplined capital deployment and synergy realization. And I want to give you some examples here. When we bought Home Timber & Hardware, we committed to a targeted synergies of $15 million and delivered more than $30 million. And of course, with Total Tools where we committed to $5 million of synergies, we delivered $7.5 million, but much more importantly from a growth and EBIT returns basis, which was made possible for -- within Metcash and IHG through the structure of their operational support, sensible governance and healthy capital deployments. Turning now to Slide 13. I want to look at some more of the detail on the acquisitions. So as I've said already, there's a compelling logic to the acquisition of Superior Foods into the Metcash Group. It's a quality food service business of national scale. It's complementary to our existing food business, and it makes that a stronger and more resilient business. It operates in an attractive market with logical adjacent categories and customers. It's really interesting to think about how the business is in the sector of one another today. Our physical networks match up very well. We buy from roughly the same suppliers, and we often serve the same customers, but we don't actually compete. Of course, the acquisition of foodservice immediately scaled our own foodservice business within Campbells. You'll know that we have a small but healthy foodservice business in Campbells and this transaction takes us to scale overnight and provides a platform for continued growth. Bianco and Alpine are perfectly aligned with IHG strategy and to use a well worn phrase, they're very much down the fairway. They are a continuation of the strategy to sensibly consolidate the highly fragmented building supplies market. They replicate on a larger and more impactful scale strategies and acquisition steps that we've done successfully a number of times already. They accelerate the growth and market share gains in the building supplies market. These 3 transactions are strategically and financially accretive to the Metcash Group and make us a more diverse, resilient and growth-focused business. So turning now to Slide 17 for some more detail on Superior. I think I've already said it, this is a business that finds its natural home in our group. As many of you know, we followed this asset for a while, and we know it well. We've conducted thorough and extensive diligence on it. We understand the risks and opportunities well. We've had a good period of exclusivity to round out that work. We've carefully assessed what and where we need to invest, through this intensive diligence. And I want to give you an example. We physically inspected assets and sites that generate more than 95% of the revenue of this business. We've watched its growth and scaling into a national operator carefully. The opportunity is now ripe for further growth for Superior within Metcash. [ Achieved ] by with the capabilities, the market scale and the capital necessary. And of course, not to mention areas -- expertise in areas like logistics, transportation, buying and strong food and liquor supplier relationships. I want to just help you work through some of the key points on the price that we paid for Superior. So on a full earnout basis, which we expect will be the case by June this year and looking backwards on a pre-synergy basis, we paid 9x enterprise valuation to EBITDA, pre-AASB16, and 8x post-AASB16. If you include synergies outlined on a pro forma basis and they have conservative synergies, we paid 6.4x on a post-AASB16 basis. Of course, as we look forward into FY '25 and the substantial growth that's embedded in the business, which I'll discuss in a moment, these multiples fall even further. In short, we're confident that this is the right time and that we've bought this business in the right way. The metrics are attractive and has great synergy potential. In addition, Superior operates in an attractive market that's expected to grow at a higher rate than the grocery markets. Consumption habits continue to change with the long-term trends. Even adjusting for the impacts of COVID-related cycles in this sector. The Superior management team who are committed to remaining with Superior are engaged and are excited by the potential of the combined business, and they bring their experience and deep customer relationships with them. I know Craig Phillips won't mind me quoting the same to me on a number of occasions that his strong view is that within Metcash, Superior has the greatest potential to fulfill its maximum value and potential. At $1.3 billion of sales and $40 million of underlying EBIT before synergies, Superior is a meaningful addition to our group. On a pro forma basis, the transaction adds 13.6% to the food revenue. Nearly 18% to food EBIT pre-synergies and almost 25% post-synergies. As a nationally scaled player, which is only 1 of 3 nationally-scaled players, it has access to national customer contracts in the corporate foodservice and QSR markets, and an approximately 6% market share in the #3 position, we believe this indicates a highly fragmented market and that there's significant growth pipeline available. What's really interesting for me about the market share is that the top 3 players have about 30% market share. That further underpins the point about the fragmented market. And our read is that Superior has a significant scale advantage over the next biggest player, and that only increases with this transaction. So it means there's a large addressable market adjacent to our own with significant white space for further expansion and consolidation. And as I've said a few times, we've successfully executed that strategy of consolidating a highly-fragmented market in IHG, and we'll use those learnings of operational support, governance, sensible integration and capital support alongside Superior's own experiences to generate attractive growth and returns. Turning now to Slide 24. This transaction makes our core business stronger in that it creates the largest supplier of food and liquor to independent businesses in Australia, adding foodservice customers to retail and on-premise liquor customers. As you know, we're already the largest supplier of food to independent supermarkets and the largest distributor of liquor to independent on-premise customers. It introduces new capabilities, new ranges and a new level of scale to both Metcash and Superior. It introduces new customers and bring strong relationships in both directions, and it materially strengthens the route-to-market proposition for our suppliers. We anticipate strong levels of support from our suppliers through this transaction. Our customers already purchased a range of food service products from a number of Superior's competitors and Superior itself, an opportunity to provide our customers with fresh and ready-made meal solutions is clear. As you can well imagine, the customer overlap with the liquor on-premise customers is very high. It's logical to assume that the vast majority of these on-premise liquor customers already purchased food from one of the players in the market. Equally, the combined group density that result from this transaction presents material opportunities for better service through more frequent and more economic delivery cycles for us and for our customers. When you think about it in the grocery sense, think more fresh more often. And the data is clear on this here. When you increase the mix of fresh, and in fresh, I include ready-to-eat and take-and-bake meals, which are sometimes called home meal replacements, this drives increased retail store sales through more frequent visits and bigger baskets. And finally, the opportunity in private label, where sometimes we lack scale is obvious through this transaction. In addition to creating a stronger business serving independent food and liquor customers across Australia, this makes our existing business margins more resilient through access to range, logistics, benefits and new customers. Turning now to Slide 29. We see material value creation opportunities through Metcash's and Superior's operations and have a high degree of confidence in realizing them successfully. We're confident because of the diligence we've done. These synergies, as you can see, are in sourcing, transportation, logistics, performance as well as in revenue and are well described and detailed in the slides. The day 1 focus will be on extracting these administrative synergies and the low-risk benefits for both businesses, while protecting the core operations and customer service for both. Before Phase 2, which will happen towards the end of the second year and will result in a deeper level of integration to realize further benefits beyond those described. As noted, we confidently predict $14 million of run rate synergies available and achieved by the end of the second year before this second deeper integration phase. So in summary, this is an exciting, accretive and logical acquisition. It supports and makes our existing business stronger and provides the opportunity for material growth and real value creation for our shareholders. Turning now to the hardware acquisitions on Page 31. You heard me speaking often about the IHG Whole of House strategy. And that's been at the core of our growth agenda for a number of years now. As I said, when you establish a relationship with the builder at the Frame & Truss stage, it allows you to engage and serve that builder more meaningfully and expand the proportion of their total project needs. In other words, to allow us to win a greater share of their spend. Bianco and Alpine support within their respective markets, and they both accelerate our expansion. They expand IHG's operational and financial scale and they fill obvious gaps in the network, both geographically and in the case of Bianco, through range. Like Superior, we know these businesses well, and we've got good relationships with the founders and leadership teams. They are high-quality businesses, they've got a strong track record and they've got experienced management teams both of whom are committed to remain with their respective operations. Both acquisitions are immediately EPS and margin accretive on a pre-synergy basis. And we see healthy synergy opportunities. IHG has got a great and strong track record of creating value through consolidation in this way. I'd say this is a well-trodden path of governance, operational support, sensible integration and cross-selling to one another's customers. We see opportunities for over $5 million of synergies on a run rate basis by the end of Year 2, and we've got high conviction in those numbers. Let's turn to Slide 32 and talk about Bianco. So Bianco Construction Supplies is well known and is highly regarded in the market. The brand is strong and will be maintaining it. It serves the South Australia and Northern Territory markets and have done so for more than 40 years from 10 locations. Included in those 10 locations is a Frame & Truss plant in Adelaide. As you know, we like Frame & Truss plants both strategically and financially. Bianco specializes in the sale and distribution of building materials to builders, concreters, bricklayers and landscapers. What's noteworthy is the addition to the IHG range of new categories like reinforcing mesh, concrete slab, hardware, structural steel and sand and soil. Revenue in this business for the last 12 months to October was $140 million and underlying EBIT pre synergies was $13 million, and we expect synergies of $2.4 million by the end of year 2. We turn to Alpine on Slide 33. This is a Victoria-based Frame & Truss operation, one of the country's largest. It's a 35,000 square meter facility in Wangaratta, Victoria. And from there, it serves the Victorian and Southern New South Wales building trade from small to large volume builders. For 12 months to October last year, sales were $46 million and underlying EBIT was $10.5 million and almost 22% EBIT margins. As you know, Frame & Truss is a key strategy for us. And these 2 transactions expand our Frame & Truss total numbers to 24 in the network, 12 of which are co-owned or owned by us. In Alpine, we expect $2.7 million synergies on a run rate basis by the end of year 2. Both hardware acquisitions, as I've said repeatedly, are in line with our current strategy. And as I think I've said, we've got a great track record here. EBIT is larger in scale and impact. My own assessment is that the hardware acquisitions are about as aligned to proven strategy as it's possible to be. We're genuinely delighted to bring these into the fold, and we're very confident we're buying high-quality assets at extremely attractive multiples. And turning now to Slide 36. I know you'll be interested in how we're going to operate and report after settlements of these transactions. We've got good experience in growing and taking -- growing businesses, extracting synergies and accelerating their growth. And we've gained that over a number of years. So as I noted, Superior -- in Superior, our focus will be on simultaneously nurturing our core business and theirs and extracting synergies in a deliberate and well-planned way. It's really important to me that we maintain our high service levels for our customers. Superior will continue to be run by Craig Phillips, the Founder and CEO and his management team, and Craig will report to me. Superior will form part of the Food pillar alongside Metcash Food run by Grant Ramage. Our new CFO, Deepa Sita; Grant, Craig and myself will form the Board of Superior, and we will be responsible for ongoing operations and performance, governance and synergy extraction. From a financial reporting point of view, we'll follow a model similar to that used for Total Tools and will share key data, including sales and EBIT for Superior within the Food pillar numbers. Bianco and Alpine will be included into IHG, which is run by Annette Welsh. And IHG together with Total Tools run by Richard Murray, who joined us just a few days ago, will make up the Hardware pillar. The Board and I are confident that this structure brings the best balance between operating entity focus and group value extraction to deliver optimal shareholder returns. Turning now to Slide 39. So as announced, we'll be funding this through a mix of debt and equity. We thought carefully about the leverage after these transactions. And I do want to say a couple of things about that. When you look at our debt leverage ratio on a pro forma basis, we've indicated that it will be just below 1.2x. But you need to be careful when you expect that. That's using the October balance sheet, which is the last published balance sheet. We did tell you when we released our half year results in December that we invested a further $100 million of Total Tools for the 15% that we didn't already own and $43 million for the JV resets and acquisitions. So we've also reminded you in the past that our average debt levels are about $200 million higher than that reporting period's balance and the peak debt levels are a further $200 million higher. On this basis, it's logical to land at $300 million to balance value creation for our shareholders with maintaining sufficient balance sheet flexibility. So in summary, the total investment of $577.5 million is made up of $412.5 million for Superior Food on the assumption that they earn their full earnout. $82.2 million for Bianco Construction Supplies, $64 million for Alpine Truss and $19 million of transaction costs. This will be funded by $300 million of equity and $277.5 million of existing cash and debt. Shareholders have the opportunity to maintain their relative interest in the company through the pro rata institutional placements while the SPP allows retail investors to apply for up to 30,000 new shares -- upon $30,000 in new shares. And we estimate that more than 98% of shareholders by number are able to apply for at least their pro rata allocation. Turning now to Slide 43, the trading outlook. Just a few comments here. Group sales increased by 0.9%, reflecting growth in the liquor and the hardware pillars, with food on an including tobacco base is flat. Sales for the third quarter were 0.6% lower driven by moderating inflation, particularly in food and a shift in the Christmas and New Year holiday period, where builders broke earlier and returned later than they did last year. Both the food and liquor pillars have continued to perform well and their improved competitiveness and differentiated value proposition continues to serve them well. We're particularly pleased that we maintained volume growth within Food. In Hardware, while demand has remained subdued in the third quarter, the business continued to perform better than the market, and we believe remains ideally placed with leading market positions to capitalize on the improvements in consumer confidence and building activity levels. Sorry. I want to conclude with a few messages. In summary, these are exciting acquisitions that provide a step change in the pace of our transformation. They accelerate our growth and it creates opportunity for material value creation for our shareholders. As I said at the start, these are on strategy. They're logical steps in our journey. We're buying them well. We're allocating capital in alignment with our capital framework and they offer exciting synergies that we've got great confidence in extracting. I've been at great pains to demonstrate that we've got a track record, the experience and the capability to deliver on these investments and most importantly, to create real shareholder value. With that, I'll hand back to the operator for questions.

[Operator Instructions] Your first question comes from Ben Gilbert with Jarden.

Congratulation. Look, I think from my side of things, the -- all of the acquisitions make strategic sense for us, this is pretty clear. It's just I'm also interested on the timing side. I think, obviously, Superior looks like it's been plotting around for some time. Your valuation, I'd argue is probably undervaluing the businesses if you look at comp structure standing sort of implied around 22x. [indiscernible] in the high teens, and it looks like your business is trading at single digits. How did you sort of frame the decision around, I suppose, making these acquisitions today, particularly given I suppose what would probably have said is relatively depressed type multiple for your business and also in light of the fact that you've had a pretty good trading update today.

Yes, Ben, thanks for the question. I'm glad that you see the strategic logic units, and it's great that you've recognized that I think we're buying these business as well. From a timing perspective, a couple of points. The first one is that you -- we've said for a while that we're going to look for value creation opportunities and opportunities to continue to transform the business and give ourselves more potential for growth on a through-the-cycle business basis. So of course, what that means alongside the fact that these transactions don't happen overnight. There are months in the making. We felt that we're buying great quality assets that will serve our business and our shareholders through those cycles and well into the future. Of course, we're very alive to where we are in the market cycles. I think I alluded when I spoke about Superior to the COVID-related cyclical growth in the sector. And of course, we all know that the building sector has enjoyed a really strong period, but that demand is currently more subdued. And we factor that in when we value these businesses, and I think that's what gives rise to the valuation that you've noticed. Just on Superior, you asked about the asset being made available in the past. We did have a look at it in the past. We felt that the timing wasn't right then. Interestingly, we shared some of that feedback with the business at that time, and they spent the intervening periods addressing some of those concerns. And fundamentally, they were around how settled their transactions were and a couple of other issues. And now that we've been able to get into the detail and diligence then, we feel comfortable about the quality of business that we're going to receive on completion.

Your next question comes from Tom Kierath with Barrenjoey.

Just a question on the margin commentary. Usually in the business, first half margins are little stronger than the second half. But I noticed that you're saying for the 8 months margins are the same as the first half. Just want to understand, is that just seasonally November and December is a bit higher? Or is there some work that you've done on the cost base there? Just to try to understand why the second half might a little stronger than usual.

Tom, thanks for the question. Yes. I mean I wouldn't read too much into it. From the first half, there's only 2 months -- 2 more months being November and December. And we're just indicating that volumes are -- top line is definitely softer, but across the group margins are relatively stable.

Your next question comes from Craig Woolford with MST Marquee.

Congrats on the acquisition. It's going to be a step change in the opportunities for the group. Can I just clarify what the distribution center and I guess, infrastructure you'll have in the Food business. I know that Superior has 23 sites, you'll have Campbells, you're building 1 or 2 new DCs on the Food side. Are all of those staying quite separate? Or are there synergies in distribution in the way the enlarged Food business will be run?

Craig, thanks. Yes. So you're right. So we've got -- in Metcash today, we've got the 5 national food and liquor distribution centers. We call them mega DCs and a further 8 liquor DCs. And yes, Superior has 23 sites. In Phase 1, we won't be integrating the supply chains of the businesses, and so that they will continue to run separately. And that's really to make sure that we continue to focus on customer service and as we work out the program of integration to the degree that we do so. You have to be sensible and cautious as you do that because the operating model, while we have, particularly in Campbells, a model that does do relatively small drop outbound deliveries. That is the sole focus within Superior. They also have a high degree of frozen and chilled products. So we see that there's opportunity. We haven't dimensioned those synergies, as I've said in the Phase 1, we think that, that's sort of more to come for the future. But we'll be doing it sensibly. I mean an example might be in the early period, Craig, we could be their logical box storage area, freeing up some of the more high-value space to increase their capacity to serve new customers.

Your next question comes from Shaun Cousins with UBS.

Doug, maybe just a question just regarding EPS accretion and synergies. I think in your comments, you highlighted that Hardware was accretive prior to synergies. Apologies, we just seen this data recently. But is the Superior Foods acquisition EPS accretive excluding synergies? Or do you need synergies to achieve the EPS accretion, please?

Shaun, we've actually done all the work for you. If you go to Slide 40, you'll see the detailed calculations. And if you go to Slide 50, you'll see a simple table. On a backwards-looking, before synergies basis on a 9x multiple, it's marginally dilutive Superior. But as I've said in my notes, as soon as you add synergies in there, it drops to down -- way down to 6.8x pre-AASB16 or 6.4x post. So there's a marginal dilution just because of where our multiples are and the way that we structured the debt and equity.

Your next question comes from Michael Simotas with Jefferies.

And I'll echo the comments about the attractive strategic rationale of these deals. Just wanted to pick up on a comment you made earlier, Doug, about when you thought about the valuations. You're sort of comfortable with accounting for where we are in the cycle in both out-of-home food as well as hardware. Are you -- have you structured this transaction and the price that you paid that you're comfortable if earnings do need to fall a little bit from those bases that have been reporting today? And I'll note the earnout for the Superior Foods business suggests, I think it's about 5% growth over the next 10 months or so. So just be interested in any more color there, please.

Yes, Michael, so you're right, the Superior earnout does imply our performance, and it's I think what it talks to and implies, is the confidence of Craig and his management team in achieving that. One thing I do want to point out, if you do the math on the earnout, you'll see that it's at a much lower multiple of 7.2x and not the original multiple, which we think is fair and sensible. The valuation of these acquisitions, when you do them, I mean, I don't want to teach anybody anything that they already know. You do them on a conservative basis as you possibly can and then you go and look to out perform. So we would certainly not be comfortable with the reduction in earnings but we value this -- we value all 3 of them accordingly. I think what's really important to note is that in all 3 cases, the management teams are at risk in that they're highly incentivized to continue to deliver growth through these businesses.

Your next question comes from Bryan Raymond with JPMorgan.

My question is around the level of investment in the business under the previous ownership. Just wanting to further understand that. And I noticed you've got $30 million to $40 million to spend in incremental CapEx over and above normal levels over the next 3 years. It's clear where that's sort of going at a high level. But just want to understand given the cash flow has been around 100% cash conversion in recent years. Has the business been invested inappropriately do you think, under prior management? Or are you looking to do something to extract those synergies further using that incremental CapEx? Just keen to understand that and how that relates to synergies a bit further.

Yes, Bryan, I'm really glad that question came. Thank you. That $30 million to $40 million, I would guide you to, think about that as growth CapEx in the main. So we've spoken about the run rate sort of $6 million to $10 million of normal CapEx and that $30 million to $40 million, which remember is over a 3-year period is about expanding for future growth. It's about further integration in systems to allow us to take advantage of some of the opportunities that I've been speaking about. And so it would be a mistake if anybody wanted to add that to the acquisition price without adding commensurate earnings.

Your next question comes from David Errington with Bank of America.

Look, I am -- can't question the strategic sense here that definitely makes sense. And what I really like about this acquisition is that you're trying to continue to look ways of growing the company. And I think all CEOs should be encouraged for doing that, and you've got certainly a great track record. I suppose my question is following a bit from Bryan's is that whenever I hear the word synergy and particularly synergies coming from companies that are pretty hard -- they run their businesses hard, such as quadrant, private equity, et cetera. There is a degree of cynicism, if you like. I mean I dealt with any company that makes acquisitions and they talk afterwards synergies. I generally get very, very cautious. So may I please ask you, Page 29, would you give us another layer of detail, please? Because you explained it from a top down, but I'm trying to understand what those synergies entail? Are they growth synergies from sales? Are they cost out synergies? Are they efficiency synergies? How much do you have to spend to get them, which I thought was a good question from Bryan. I'm just a bit nervous when an acquisition talks up synergies so much. So maybe please give us another layer so that we can be assured on what seems to be very strategically sound but still I'm a little bit nervous about what is going into those synergies and how much we can actually look at banking in our forecast. If you could do that for us, that would be terrific.

Yes. Thanks, Dave. Thanks for the question. So I'll quote you back to yourself the healthy cynicism when buying from private equity. I recognize that. And I think we share that. I've spoken at length about the diligence about the length of time that we've known this business and how we've watched it grow in scale. So I think we have a very good understanding of the business and the assets that we're buying, as I said, we're comfortable with the quality of the business that we'll be taking over on completion. From a synergy point of view, I'll give you a couple of examples, perhaps to bring it to life. I used the example, I think, in response to Michael's question of that's the top one, their network optimization of shared services. While in Phase 1, there will be limited integration between our 2 businesses, there is an immediate opportunity to provide them with bulk storage scale just as a simple example. In terms of procurement synergies, yes, I just want to be clear, we have always believed in a productive and constructive engagement with our suppliers. And you've heard me talk about our acceptance of the responsibility to be an efficient and effective route to market partner for them. I'm kind of -- I describe it as I want our suppliers waking up in the morning wanting to do more business, not less with us. And so we will engage with them constructively on the opportunity to improve pricing in both directions. What's obvious though is our ability to provide Superior with what I'll call FMCG product lines at a materially better cost than they would be buying it today. So you can think of things like the cleaning category that all restaurants and foodservice businesses would need. You can think about fizzy drinks, chocolates, chips, that kind of thing, we can materially improve their pricing there. And then in terms of range expansion into our business and into this, the example I'd use there for you is private label. We're often in a position where we don't quite have the scale that we'd like. They have a nice private brand business, and the ability to combine those 2 businesses in the very short term is obvious. So those are just some of the examples, certainly, not extensive. And as I've said, we do have a track record of over delivering on synergies. So we wouldn't put it in the slides if we didn't have high confidence. And certainly, we want to maintain that track record.

Your next question comes from Lisa Deng with Goldman Sachs.

Congratulations again on the transaction. Can you give us a bit more color on the working capital profile of the 3 businesses, please? And then also just on the synergies. What does this mean for Hyperion -- sorry, not Hyperion -- Project Horizon. So do we need to include this as part of the Horizon costs, i.e., higher costs to be expected there?

Lisa, thank you for your questions. So firstly, from a working capital, that kind of typical wholesale working capital cycles. They're variable throughout the year, as you can well imagine, and they have different peak periods, but they're not materially different from ours or materially numbered that they're going to change the shape of our own working capital profile. We certainly, as I've kind of alluded to, would hope that we can help them. In terms of Horizon, this is not in the scope of Horizon, and you don't need to add anything more for Horizon.

Your next question comes from Richard Barwick with CLSA.

Doug, just wondering, to what extent have you talked with your existing customers about this Superior Food or at least sound of the mouth because I guess we -- I guess a little bit worried about, is there a risk that you've got customers -- so right now Metcash will be an owner of Superior Food for that customer, effectively, they've got a single supplier, more eggs in one basket. Is that something that they will find less attractive and therefore, there's a bit of a risk around the revenues you're collecting? Or is there a counterargument to say it's a good news item?

Richard, thanks. It's really an insightful question. That's a good question. So the -- we don't discuss these transactions, of course, with anybody ahead of time. But we do have a good understanding of our retailers. We do get some data on what they sell, that they don't buy from us. That's how we calculate our teamwork scores, as you know. But we don't see -- for confidentiality reasons, we don't see who they buy from, and we're pretty strict about that. But we can see from what they're buying that many of them do buy, as you've pointed out, and you would expect from the foodservice sector. You know well that we have thousands of food customers, and so there will be a range of perspectives. I would imagine that if we have done this 5 years ago, there would have been a higher propensity of those customers that have some sense of discomfort. But even then, I think it would be in the minority. I would venture that today the vast majority will welcome this. I just want to give you a quick example. You've heard me talking about the Sorted platform. And that's our B2B e-commerce platform. I think I might have spoken about how quickly it got to 1 million transactions, and ahead -- it's more than double that now. And that portal allows our customers to place orders on ranges that are in our distribution center but also ranges that are not in our distribution centers. So it's essentially a B2B marketplace. And the response to that has been very favorable, both from customers and suppliers. So certainly, our intention is that we make available Superior's range through Sorted. What that does is it allows not just the retailer to buy the products easy. They can use the credit that they have with us, and we would settle Superior. So we see it as an extremely positive thing. And I would expect that the vast majority of our retail customers would as well.

Your next question comes from Adrian Lemme with Citi.

My question is relating to acquisitions in Superior Food. So firstly, can we assume that from that FY '22 to FY '24 period that's shown as a 10% CAGR that that's all organic? And then secondly, with the focus on achieving the synergies for the first couple of years, should we assume that further acquisitions in this space would be unlikely?

Adrian, thanks for the question. So yes, you're right about your assessments of the 10% organic. Our focus absolutely will be on betting the business down. But because we're not anticipating high degrees of integration, we're not just going to, for example, put the accounts payable team and the payroll teams to smash them together. We're going to do this on a very sensible and sensitive basis, focusing on the real value drivers of both businesses. And so whether we focus then on continuing to consolidate the market will depend on the opportunities as they present, our capacity to do them and the value creation that would be available for our shareholders.

Your next question comes from Ross Curran with Macquarie.

Apologies. I had almost the exact same question as Adrian just been -- around consolidation. Maybe can I ask it a slightly different way. Is there a scale leverage point. If you get to 10% market share, does the margins materially change in this business?

Ross, I would say that the material inflection point was when you reach national scale, and that has now happened and being settled. Getting further scale, it always makes a difference, but it doesn't provide the same inflection point. And so Superior, as I've said a few times, is now one of only 3 businesses that has done that. And in that intervening period since they got there, they have started to win national contracts. So they've proven the capability to do so.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Jones for any closing remarks.

Thanks very much, and thanks, everybody, for your time and attention to short notice. It's heartening to hear the positive feedback on the strategic sense of these acquisitions. Certainly, I just want to reiterate my excitement around these announcements. As I've said, it's a step change in our business. It makes us stronger. It makes us more diversified. It strengthens our core business, and it accelerates our growth strategies. Superior, in particular makes both businesses a stronger, higher-quality business together. And as I've noted, overnight, scales our foodservice business. And in hardware, very much a continuation of our existing strategies. And so we feel very comfortable with it. So with that, I'd like to wish you all a good day further, and I look forward to interacting with you individually in the future.

That does conclude our conference for today. Thank you for participating. You may now disconnect.