Metcash Limited (MG9.F) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. My name is Rob Murray, Chair of the Board of Metcash Limited. On behalf of the Board, management of Metcash, I extend a warm welcome to you to the company's 2020 Annual General Meeting. As you are aware, in response to government restrictions and the potential health risks arising from the rapidly evolving COVID-19 pandemic, the Board determined to hold this year's AGM virtually. Hence, today's meeting is being held online via the Lumi platform. This allows shareholders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting. In addition, shareholders and proxies have the ability to ask questions and submit votes. We very much appreciate your understanding at this challenging time, and thank you for joining our virtual meeting. As we have a quorum present, I declare the general meeting open. First, let me introduce your Board of Directors, some of whom are present with me today and others who like you are attending the meeting virtually: first, Jeff Adams, our Group Chief Executive Officer and Executive Director; and our non-executive directors, Peter Birtles, who recently took over as Chair of Audit, Risk and Compliance Committee; Tonianne Dwyer, who has been on our Board since 2014 and retires by rotation under the constitution today and is offering herself for reelection later in the meeting; Murray Jordan; and Helen Nash, Chair of our People and Culture Committee. I will also retire by rotation under the constitution today, and I'll offer myself for reelection later in the meeting. Finally, also with me today is our Company Secretary, Julie Hutton. Joining us virtually, we have our Group Chief Financial Officer, Brad Soller; and the signing partner for the company's FY '20 audit, Christopher George, from our external auditor, Ernst & Young. Mr. George will be available to answer questions shareholders might have concerning the conduct of the audit, the preparation and content of the auditor's report, the company's accounting policies and the auditor's independence at the conclusion of the Group CEO's presentation. We welcome and thank Mr. George for his attendance today. Also in attendance, we have the heads of our various pillars, being our Chief Executive Officer, Metcash Food, Mr. Scott Marshall; our Chief Executive Officer at ALM, Mr. Chris Baddock; and our Chief Executive Officer, Independent Hardware Group, Ms. Annette Welsh, who stepped into the CEO role on the 1st of May. As well as the following members of our group leadership team: our Chief Strategy & Transformation Officer, Mr. Matt Havens; our Chief People & Culture Officer, Ms. Penny Coates; and our Chief Information Officer, Mr. David Reeve. Today, we will review the company's activities during the year and receive and consider the accounts and reports for the 12 months that ended on the 30th of April 2020. We will then consider the 4 resolutions outlined in the Notice of Meeting which was lodged with the ASX and sent to all shareholders on the 23rd of July 2020. [Operator Instructions] Please note that while you can submit questions from now on, I will not address them until the relevant time in the meeting. That is when we are considering the relevant item of business. Please also note that your questions may be moderated or amalgamated, for example, if we receive multiple questions on one topic, to avoid repetition. Our General Manager of Corporate Affairs and Investor Relations, Steve Ashe, will assist with this. Finally, due to time constraints, we may run out of time to answer all your questions. If this happens, we will answer them in due course via e-mail. Finally, we've received a number of questions from shareholders in advance of the meeting which I will also address during the course of the meeting. Voting today will be conducted by a way of a poll on all items of business. In order to provide you with enough time to vote, I will shortly open voting for all resolutions, and voting will remain open until the end of the meeting when I declare voting closed. When voting opens, if you're eligible to vote at this meeting, i.e., that's if you're a shareholder or a proxy, a new polling icon will appear. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit a Submit or Enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare voting closed. Any appointed proxy who has been given discretion on how to vote should vote in the same manner. Any appointed proxy that is being directed to vote in a certain manner and has no discretionary votes to cast does not need to vote as those votes will automatically be counted in accordance with those directions. I now declare voting open on all resolutions. The polling icon will soon appear. Please submit your votes at any time. I will give you a warning before I move to close voting. I will now give my formal Chairman's address, which was released to the ASX before the meeting this morning. Ladies and gentlemen, I will now provide you with a high-level overview of how we performed in FY '20 as well as comment on other important matters such as our strategic direction, senior management and Board changes and remuneration outcomes for the year. I will then invite Jeff to talk in more detail about the company's operating performance and outlook as well as progress on key growth initiatives. Turning firstly to our performance. I'm pleased to report that the company delivered admirable results and clearly demonstrated its purpose of championing successful independents. The FY '20 financial year will stand as one of the most challenging years we have experienced, with devastating bushfires severely affecting many of our retailers and local communities particularly in rural and regional areas, where our retailers are strongly represented. This was then followed by the COVID-19 pandemic which drove unprecedented spikes in demand particularly in the food pillar, resulting in extreme pressure on our supply chain. During the bushfires, our teams went to extraordinary efforts to ensure our retailers were safe and able to continue supporting their communities with supplies of essential items such as masks, generators, cleaning materials, food and water. We worked closely with government, the Rural Fire Service and other essential services to ensure continuity of supply, including arranging air drop deliveries into some communities that became isolated by the bushfires. Our people also contributed to the cleanup and rebuild through the establishment of Tool Libraries in affected communities. This initiative enabled impacted residents to have access to trade quality tools at no cost. In total, Metcash and our independent retailers were responsible for donating more than $1.3 million to support those impacted by the devastating bushfires. Not long after the bushfire crisis had subsided, the spread of COVID-19 became a focus around the world. We recognized the critical role that we and our retailers would need to play in supporting communities through the crisis particularly in regional and remote areas where our retailers are often the only store in town. We quickly reset our priorities to protecting the health and well-being of our people, doing whatever was necessary to make sure we kept our supply chains running and distribution centers operating and ensuring we remained in a strong financial position so that we could continue to supply and support our retailers. While there were many outstanding efforts across all our pillars during this period, I would like to make special mention of the speed in which we flexed our food distribution center operations to make the surge in demand that commenced in March. Within a period of only 2 weeks, we were operating at the equivalent level of having added another mega distribution center to our network. This was achieved through hiring and training new staff as well as over time by our existing teams. To achieve this in such a short period of time whilst also delivering an improvement in group safety performance in the year was really an extraordinary effort. While COVID-19 trading restrictions had a positive impact on sales in our Food and Hardware pillars through March and April, our Liquor pillar was adversely affected by the shutdown of businesses both in Australia and New Zealand, which represented about 20% of our total sales. Overall, I'm very proud of the way Metcash and our retailers rallied together during these periods of crisis and really delivered on our purpose of championing successful independents. This enabled our retailers to do what they do so well, supporting their local communities. In April, we completed a $300 million equity raising and secured an additional $180 million of short-term debt facilities in response to the high level of uncertainty associated with COVID-19. This provided us with additional financial flexibility to support impacted retailers during the COVID-19 restrictions whilst also enabling us to continue to invest in growth opportunities across our 3 pillars. In June, we announced the completion of 2 bolt-on acquisitions in Liquor and that we were well progressed on the acquisition of a large hardware retailer. In Liquor, we acquired the Liquor Centre, which significantly expands our retail store network in New Zealand. And we also acquired the Kollaras private label brand portfolio, which will enable us to accelerate our growth in the private label category. Last month, we announced that we had entered into an agreement to acquire a majority stake in Total Tools Holdings, the franchiser to the largest professional tool retail network in Australia with 81 stores nationwide and annual sales of over $0.5 billion. Total Tools is a great fit for us, and it will strengthen both our existing independent hardware group and the Total Tools retail network. We are very excited about this opportunity. Turning now to our financial performance. Extraordinary demand in the Food pillar in March and April drove strong sales in FY '20. Importantly, the underlying sales trajectory of Supermarkets wholesale sales ex tobacco continued to strengthen during the year, with sales growth delivered for the first time since FY '12 even excluding the spike in sales in the last 2 months of the year due to COVID-19 restrictions. The success of our strategic initiatives to further improve the competitiveness of our retailer network, together with the shift to more local neighborhood shopping during COVID-19 restrictions, resulted in market share gains for the IGA network. Our Liquor pillar continued to perform well, delivering its seventh consecutive year of sales growth despite our New Zealand operations and on-premise customers in Australia being shut down for the last 5 weeks of FY '20 due to the COVID-19 restrictions. In Hardware, the business returned to sales growth in the second half of the financial year, with March and April sales benefiting from COVID-19 restrictions. Over the full financial year, total sales were slightly below the prior year as an increase in demand in DIY categories was not sufficient to offset the impact of the slowdown in construction activity on trade sales. Underlying group EBIT pre the impact of the new accounting standards AASB 16 was $324.2 million. And group underlying profit after tax, also pre the impact of the new accounting standards AASB 16, was broadly in line with the prior year at $209.7 million. On a statutory basis, the company reported group underlying loss after tax of $56.8 million which includes an impairment of goodwill and other assets made at the half year relating to the 7-Eleven contract. Jeff will talk more on this in his presentation. The Board declared a final dividend of $0.065 per share, which provides a total of $0.125 per share for the year, fully franked. I would now like to tell you about some changes to our senior management team and to the Board. In January, we announced that Mark Laidlaw would be retiring as CEO of our Hardware pillar and that Annette Welsh had been appointed to succeed him. Mark believed it was an appropriate time for him to step down with the Hardware business strong, diversified and are well positioned as the second largest player in the market. Mark was instrumental in the growth of this business, and we sincerely thank him for his efforts. Mark will not be entirely lost to Metcash as he has kindly agreed to be the Executive Chair of Total Tools Holdings once this acquisition is complete. We are fortunate to have a strong management team, and it was satisfying to be able to appoint a quality internal candidate to succeed Mark. Annette is a well placed -- is well placed through her extensive experience and deep understanding of our Hardware business to continue its growth momentum. Another change to our senior management team is the impending retirement of Brad Soller from his Group CFO role. Brad advised the Board in March of his intentions and kindly agreed to stay on through our process of appointing and inducting his successor. Brad's stewardship since joining Metcash in 2015 has been a key driver of the company having a strong financial position. His extensive experience and financial acumen have been highly valued by the Board, and we wish him all the best for the future. Earlier this month, we were pleased to announce the appointment of Alistair Bell to succeed Brad as Group CFO. Alistair is a highly experienced executive, having held various CFO, COO and strategy positions with public-private equity and multinational companies spanning various industries. Alistair will be an asset to Metcash, and we look forward to him joining us next month. Now to the Board. In February, we shared the profoundly sad news that Wai Tang had passed away after a short illness. Wai was appointed a non-executive director in August last year and had been a valued contributor to the Board since her brief time joining us. Our search for an appropriate replacement is progressing well and we will make an announcement on this in due course. I am pleased to advise that Peter Birtles has been appointed Chair of the Audit, Risk and Compliance Committee. Peter's appointment forms part of a planned transition from Tonianne Dwyer which concluded following completion of our FY '20 accounts process. Peter is well credentialed for the role, having extensive experience as both a CEO and CFO in publicly listed companies. I would like to sincerely thank Tonianne for her significant efforts and oversight as Chair of the Audit Committee since her appointment in June 2018. Now I turn to remuneration. Last year, I advised that a number of changes to our remuneration structure aimed at creating an even stronger link between executive and shareholder outcomes would commence in FY '20. These included the deferral of a component of any STI earned to be delivered as equity and the expansion of our minimum shareholding policy to include key management personnel. These changes result in our KMP having the majority of on-target, at-risk remuneration delivered in equity. In arriving at overall remuneration outcomes for FY '20, the Board and management were cognizant of the wider economic challenges facing the community and many of our customers, agreeing that it would be inappropriate for executives to benefit unduly from COVID-19, including the trading outcomes in the last 2 months of the financial year. Reflecting this, the Board has deferred any increases to KMP fixed remuneration until the trading environment becomes more settled; has based STI awards and LTI vesting broadly on pre-COVID outcomes to avoid any undue benefit; and increased the deferral component of the STI awards for greater shareholder alignment in these uncertain times. The Board believes this approach is fair to both executives and shareholders. We will have the opportunity to discuss the remuneration report later in the meeting. I am pleased to report that our achievements in gender pay parity have again been recognized with receipt of our second Employer of Choice citation from the Workplace Gender Equality Agency. We've continued to narrow the gender pay gap, which at the end of FY '20 was less than 1%. Looking forward, FY '21 has started strongly. We continue to see the shift of more local neighborhood shopping across all pillars, and we are now focused on ensuring the new and returning customers gained through the COVID-19 period are retained in our independent network. Jeff will provide more information on FY '21 trading in his presentation. From a strategic perspective, our MFuture program continues to be well supported by the quality, dedication and passion of our leadership team, the Board and our retailers. And it will be a key driver of further improving the competitiveness of our retailer network. Despite the uncertainty ahead associated with COVID-19, we have a strong financial position that enables us to continue supporting the ongoing success of our independent retailers and to invest in growth opportunities. I would like to thank my Board colleagues, all our people, the leadership team, our independent retailers and our suppliers for their ongoing support. Finally, on behalf of your Board, I would like to thank you, our shareholders, for your support. I will now hand over to Jeff to give his presentation, which was also released to the ASX this morning and is available for review on the Metcash website. Thank you.

Thanks, Rob. Good afternoon, everyone. I hope all of you, your families and your friends remain safe and healthy during these unprecedented times. Today, I'll provide you with some more detail on our FY '20 results, including progress on some of our key and future initiatives, and then talk about the exciting Total Tools acquisition that we've announced before finishing up with an update on our trading in the first quarter of FY '21. But before I start, just a reminder of our purpose, vision and values, as shown here on the next slide which we include at the start of all of our presentations. These remain unchanged from last year, with our purpose being championing successful independents. And I believe the group has done an amazing job of living this purpose through the events of the past 9 months. Moving on now to the next slide, the group highlights for the year. Group revenue increased by 2.9% in the year and up 2% when you include charge-through sales to $14.9 billion. Sales were strong in the second half of the year, buoyed by the positive impact of the changes to consumer behaviors during the COVID-19 restrictions in Food and Hardware pillars in March and April. It's important to note here that all pillars were on track for improvements over the first half of the financial year performance before the uplift from the restrictions. I'm very proud of the way the whole group and our retailers rallied during this unprecedented year. Our teams went to extraordinary efforts during the bushfires and COVID-19 restrictions particularly in regional and remote areas where our network is significantly represented and where our retailers are often the only store in town. We really lived our purpose of championing the success of our independent retailers. Our Food business continued sales momentum we had in the first half of the year even before the COVID-19 uplifts of March and April, reporting an underlying sales growth for the year in wholesale sales ex tobacco for the first time since financial year '12. This confirms that our strategic initiatives are delivering positive results. Liquor was impacted in the last 5 weeks of the financial year by the shutdown of our New Zealand business and the on-premise customers in Australia but still delivered its seventh consecutive year of sales growth. And Hardware returned to sales growth in the second half of the year driven by a very strong DIY performance. From an earnings perspective, group underlying EBIT was $324.2 million, which was about $12 million increase on the prior year after adjusting for the loss of Drakes and a lower contribution from the resolution of onerous leases. From a statutory perspective, we reported a 58 -- a $56.8 million loss after tax, which included the impairment we reported in the first half of $242.2 million related to the 7-Eleven contract. 7-Eleven was seeking a more onerous supply agreement with terms that would not have been economic for us. Our view was that it was in the shareholders' best interest to take a noncash impairment rather than incur losses -- cash losses under their proposed new terms. And as you know, we raised equity in April to strengthen our financial position to help address the uncertainty associated with COVID-19 and allow us to continue investing for growth. This has helped us fund the acquisition of a majority stake in Total Tools Holdings, which I'll talk about shortly. And as the Chairman has mentioned, we have made a strong start to financial year '21, which I'll also cover a little bit later. Moving on now to the next slide, which shows results overview by pillar. Firstly, to Food, where sales increased 3.5% to $9.1 billion, with sales growth delivered even excluding the positive uplift due to the COVID-19 restrictions. And importantly, we have seen the success of our strategic initiatives together with a shift to more local neighborhood shopping during the COVID-19 deliver market share gains for the IGA network. Underlying Food earnings were $177.5 million, which were up about $12 million from the prior year when you exclude the loss of Drakes in South Australia and the lower contribution from onerous lease resolutions. And in Liquor, we increased 0.3% to $3.68 billion, which represented the seventh consecutive year of sales growth, a great accomplishment for the Liquor team given the COVID-19 shutdowns impacted about 20% of the total shares in that business. Despite the challenges of FY '20, Liquor earnings were broadly in line with the previous year at $70.6 million. Our Hardware pillar returned to positive sales growth in the second half, as mentioned, with March and April benefiting from the COVID-19 restrictions. We saw an increase in demand in DIY categories such as paint and garden which has helped to offset a decline in trade sales, which continued to be impacted by the slowdown in construction activity. Total hardware sales for the year were down 1.3% to $2.08 billion with the second half growth partly offsetting the sales decline we reported in the first half. The business maintained prior year earnings of $81.2 million. Turning now to the next slide, which details the progress on a number of our key MFuture initiatives in Food. Under the store or brand clarity initiative, we have started to apply the learnings out of our small store trial to the rest of the express network and are seeing positive results from those changes. The first of our Supa Valu large-format stores opened at Doonside, New South Wales. Our focus is now on our core IGA branded stores and standards. Our Diamond Store Accelerator, or DSA, store refresh program remains a key driver of improvement in the quality and modernization of our IGA store network. We completed our highest annual total of DSAs so far with a further 124 stores completed in the year, with about 40% of the network now having been upgraded. Once upgraded, these stores have delivered a very good retail sales growth of more than 15%. We have also continued to expand our Community Co private label range in the ready meals, delivering great value to customers and better returns to our retailers. The range will continue to be expanded further this year. Finally, under the low-cost operator initiative, our new distribution center in South Australia will be completed by the end of this calendar year. Moving on now to the next slide, which is our Liquor MFuture initiatives. At the height of the pandemic in April, we launched our new e-commerce platform in liquor called Shop My Local, which was about 6 months ahead of our original schedule. We now have about 280 stores signed up to this new platform, and digital represents an exciting growth opportunity for us and our retailers. The team has made good progress towards an integrated point-of-sale system, and we have also seen significant engagement and support from our liquor retailers for launching a new loyalty program. We expanded our private and exclusive label ranges in the year, and we recently acquired 75 private label brands from Kollaras Trading, which will be a key accelerator now to our private label growth strategy. Prior to COVID-19, we were making good progress in the on-premise market with about 650 new customers added in FY '20, which had helped us deliver good growth in the on-premise ales prior to the COVID-19 impacting that business. Moving on now to our Hardware initiatives, which are shown on the next slide. We have now completed 90 stores in our Sapphire upgrade program and continue to target 200 stores to be completed by 2022. These upgraded stores are delivering good sales growth of over 15%. The number of Trade Only stores increased to 19, with plans to increase this to 40 by 2022. The company-owned retail network is key to ensuring a strong independent model, and this year, we've made 6 acquisitions including 17 sites, which increased our network of retail stores to 105. We're progressing well in our Whole of House strategy with frame and truss facilities in place, additional alliances established and staff training now completed. From a digital perspective, we now have about 14,000 SKUs available online compared to about 3,000 last year. This has helped us to deliver a 40% increase in online sales in the year. We've also made further progress in developing our technology to support our trade customers including Truck Tracker, Trade Online and Trade Plus. Moving now to the slide covering our acquisition of Total Tools. Last month, we announced that we had entered into a binding agreement to acquire a majority stake in Total Tools Holdings, the franchiser to the largest retail network of tools in Australia with 81 stores nationwide generating annual sales of over $0.5 billion. Late last week, the ACCC announced I that it would not oppose the acquisition. This means that we can now move to complete the transaction and bring Total Tools Holdings into the Metcash Group. The acquisition aligned with our strategy to be the leading supplier to independents in each of our 3 pillars. Total Tools is a complementary business to our Independent Hardware Group and will represent a significant growth opportunity for us. We think Total Tools is a great fit for us, and we're very excited about Total Tools joining us soon. Moving on now to the slide with the update on our first quarter trading in FY '21. And starting with Food, sales have continued to benefit from the change in consumer behaviors that we've seen since the introduction of the COVID-19 restrictions. Total Food sales in the first quarter of FY '21 increased 11.4% on the prior comparative period, and Supermarket wholesale sales ex tobacco were up 13.8%. Excluding the impact of the loss of Drakes in South Australia, total Food sales in the first quarter of FY '21 increased 14.9%, and Supermarket wholesale sales ex tobacco increased 18.4%. In Liquor, our Liquor business has continued to perform well following the relaxing of restrictions in both New Zealand and for the on-premise businesses across Australia. All trading restrictions in New Zealand were lifted on the 9th of June but, following a recent outbreak of COVID-19 there, were reintroduced on the 12th of August. On-premise trading restrictions in Australia were partially lifted during the quarter but were reintroduced in Victoria on the 5th of August. Liquor sales in the first quarter of FY '21 increased 11.4%. Excluding those customers impacted by the trading restrictions, sales in the first quarter of FY '21 increased 23.2%. Our Hardware pillar has also had a strong first quarter underpinned by very strong DIY -- demand in DIY categories and with trade sales holding up well. Hardware sales for the first quarter of FY '21 increased 19.2%. Trading restrictions were imposed in metropolitan Melbourne on the 2nd of August for a 6-week period. DIY sales have been restricted to Click & Collect and Click & Deliver, but there are no restrictions on retailer trade sales, although some restrictions at building sites have been imposed. Our pillars and independent retailers continued to be subject to significant volatility and uncertainty in their trading environment and operations due to the potential changes in COVID-19 restrictions. It is also important to highlight that our operating costs across all pillars remain elevated as we continue to respond to strong demand from customers, increased volatility and the incremental costs associated with managing the health and safety of both our employees and customers. So just to wrap up from me, we delivered very credible results in FY '20. And as you've just heard, the first quarter of FY '21 has started well with strong sales growth across all 3 pillars. We continue to see the shift to more local neighborhood shopping which fits well with our network, and we and our retailers remain focused on ensuring the new and returning customers gained through COVID-19 period are retained in our independent network. Before handing back to the Chairman, I'd also like to thank you, our shareholders, for your ongoing support in what has clearly been very challenging and unprecedented times. Thank you.

Thank you, Jeff. Turning now to the formal items of business. The first item of business is to receive and consider the financial report of the company and the reports of the directors and auditor for the financial year that ended on the 30th of April 2020. You will note that there is no requirement to vote on the reports. The company's 2020 annual report was sent to shareholders who requested a hard copy and made available on the company's website and ASX platform. The 2020 annual report contains the statement of comprehensive income, the statement of financial position, the statement of cash flows and the reports of the directors and auditor. As noted, shareholders will have an opportunity to ask questions about the reports and the conduct of the audit and the auditor's report at the conclusion of the Group CEO's presentation.

I'll now respond to the questions we've received on this item in advance of the meeting. First question was from [ Ms. Lee ]. She asked a question relating to inventories. She asks why there has been an increase from $779.3 million of inventories in 2019 to $1.032 billion in 2020. The answer to the question is our 2019 stock levels were lower than historic averages as a result of the Working Smarter initiatives, which we had discussed with you at previous AGMs. Due to the changing and unpredictable buying patterns we've witnessed with COVID-19, we did invest in additional stock over our normal carrying levels in the last quarter of FY '20. And there are also a few acquisitions, which you should remember, and conversions from JVs during the year. We saw these especially in our Hardware pillar, and they've added to our stock balances, as you would expect. The second question was also from [ Ms. Lee ], and it was in relation to the audit fees. she asks why the basic audit fee for preparation of statutory financial reports increased from $1.78 million to $2.1 million as an 18% increase while overall fees have increased from 2 point -- just a tick under $2.1 million to $2.3 million. The answer to the question is the audit fee is in line with the prior year and is our agreed fee with Ernst & Young. This year, we also engaged Ernst & Young for additional advice and assurance pertaining to the adoption of the new accounting standard on leases that I mentioned earlier, AASB 16. This is a significant piece of work, and that forms a large part of the difference that you've correctly identified. Our fees this year for tax and other services were less than what we incurred in FY '19, which has offset some of the additional fees I just mentioned. We also had some -- that's the answer to that question, so I thank you for that. We also have some general questions that were submitted, and I'll respond to those now before we move on to the next resolution. So in the category of general questions, the first was from [ Mr. Seso ]. He asked will the AGM be returning to normal face-to-face and when will that happen. The answer to that is whilst technology and virtual engagement has its benefits, I think many of us are looking forward to being able to return to face-to-face meetings as soon as we can. We will obviously be guided by the Australian government on this, and we'll have to wait until the current social distancing restrictions are no longer in place, hopefully this time next year, but we'll just have to wait and see. But we see these meetings as unusual, not the norm. And provided restrictions ease up, then we would return to face-to-face meetings. [ Ms. Lee ] also asked a general question in relation to modern slavery. And that is whether local suppliers have been reviewed since the reports of exploitation of backpackers and Pacific Island workers in Regional Australia. The answer to that question is we've done an extensive amount of work this year to ensure we comply with the modern slavery legislation, and we will be providing our modern slavery statement to the government later this year. The work that we have done did include identifying areas of elevated risk in our operations and supply chain and in implementing a plan to minimize this risk over time. And yes, this risk identification work did include local as well as overseas suppliers. We also commenced further analysis on those areas identified with elevated risk, including engaging with our suppliers, and we will be completing a majority of this follow-up work as part of our FY '21 work plan. We also had a question from [ Mr. Kay ], who asked whether we've considered a fuel discount program with a national fuel operator. The answer to that question is a number of our retailers have implemented fuel discount programs where it makes sense for them. We've also considered it from a broader -- much broader perspective. However, our assessment was that such a program didn't warrant progressing at the expense of other good growth opportunities for our network. I also received 3 general questions from the Australian Small Shareholders' Association (sic) [ Australian Shareholders' Association ], the ASA, and so I'll try and answer those now as well. The first 2 relate to the acquisition of Total Tools. What is the time frame for the acquisition now that the ACCC has raised no objection and whether the Board sees any cultural or other challenges that could impact the merging of Total Tools into the Metcash portfolio? The answer to the question is we do have a small number of matters to complete before we can finalize the acquisition, but these aren't expected to take long. We will make an announcement via the ASX once the acquisition is complete. And we, as a Board, do not foresee any significant challenges in the merging of Total Tools into our business. We've previously worked with their CEO, Paul Dumbrell, when he ran our auto business. And both businesses have aligned philosophies, with the success of independent retailers at the heart of what we do, so we see a cultural fit. The ASA also noted that the sales revenue for the year increased but that the reported profit from the previous year decreased due to the write-downs that were mentioned by Jeff and myself in relation to a loss of contract. They asked why the write-down is not considered as part of the normal course of business, and they also asked whether the company expects to make a profit next year and what the forecasted earnings per share is. Helen Nash and myself met with the ASA in early August and discussed this with them at the time, so I'll share the information that we shared at that meeting. The impairment related to advice from 7-Eleven that they intended not to renew their current supply agreement with Metcash when it's expired in August this year, they advised us that it was in our shareholders' interest, we believe, to take a noncash write-down of goodwill related to this advice rather than incur losses under the terms of any contract being proposed by 7-Eleven. The goodwill impairment was $242 million, and that's clearly a significant item, which is why it was shown separately below the line in our accounts. From an underlying perspective, group profit after tax was $209.7 million in FY '20, and we certainly aim to be profitable from both an underlying and statutory perspective in FY '21. However, we have not provided any specific earnings guidance for FY '21, which we believe is prudent given the high level of uncertainty and volatility around demand and costs, as Jeff just mentioned. I'll now ask our General Manager of Corporate Affairs and Investor Relations, Steve Ashe, to read out any questions on this item received online.

No other questions, Rob.

Thank you. Steve has just confirmed that there are no other questions on this item. We will now move to consideration and discussion of each of the resolutions to be put to the meeting. A reminder that those eligible to vote on the resolutions can submit their votes anytime. As you are aware from the Notice of Meeting, I will be retiring from the Board in accordance with the requirements of the company's constitution and will be offering myself for reelection. While this process is underway, I will hand the Chair of the meeting over to Peter Birtles. However, first, as is our tradition, I will say a few words in connection with my proposed reelection. I know that directors -- sorry, shareholders are always in favor of potential directors saying a few words when they are seeking to be reelected. I really wrote down a few thoughts on this. I've been the Chair of Metcash for 5 years. When I joined the business, I know we had some shareholders who've been -- most of our shareholders, in fact, have been with us through this entire journey. So I spoke at the time, you may remember, about my intrinsic reasons for being a part of Metcash, the idea that I do what I do because I like the idea that I could make a difference to an organization and the people in it. I passionately believe that independence is worth fighting for in the world in which we live, and therefore, the core purpose of Metcash is vital and important. And I believe in creating value for shareholders. And I think all of those things are opportunities -- were opportunities at Metcash and remain opportunities at Metcash going forward. Five years on, so much has changed. There are many different measures of market cap at different points in time over different time periods. But in those 5 years, if you take a measure from the end of the financial year, our compound average growth rate of total shareholder return over that 5 years was 18.1%. If you took that from the most recent timing in August, it would be 21.4%. And I think that shows the business has made progress. I believe our results have been greater quality. The shape of our business has changed. We have -- particularly in our Hardware business, have a meaningful pillar now to supplement Food. And you all know that the Board -- makeup of our Board and GLT has changed significantly. And I believe if you always seek in your time in a role to leave it much better than you found it, that we're in good shape to do that. I believe we have a strong team in place now to drive this business to the future. And I think that shows in the quality of our service to our retail partners. There's still much to do though, and I remain committed to helping this organization achieve so much more. And I ask for your support as shareholders for another period of office to allow me to continue that journey. I'm going to hand over to Peter now.

Thank you, Rob. Good afternoon, ladies and gentlemen. So as the Chair has noted, its second item of business is to consider the reelection of directors, starting with Mr. Robert Murray. Under the company's constitution, Rob retires by rotation at the conclusion of this meeting and, being eligible, has offered himself for reelection. Rob's profile is outlined in the explanatory memorandum contained in the Notice of Meeting and also in the annual report. Rob is the Chair of Metcash. He's the Chair of Metcash's Nomination Committee. He's a member of the People and Culture Committee and also attends meetings of the Audit, Risk and Compliance Committee. The Board has concluded that Rob is an independent nonexecutive director and unanimous -- yes, say that word properly, unanimously supports his reelection. The resolution is now open for discussion. We didn't actually receive any questions in advance of the meeting, so I will now ask Steve Ashe to read out any questions on this item received online.

There are no questions received, Peter.

So Steve has confirmed that there are no questions on this item, so it's my pleasure to hand the Chair of this meeting back to Rob.

Thank you, Peter. Shareholders are also requested to consider the reelection of Ms. Tonianne Dwyer as a Director of the company. Under the company's constitution, Tonianne retires by rotation at the conclusion of this meeting and, being eligible, offers herself for reelection. Tonianne's profile is outlined in the explanatory memorandum contained in the Notice of Meeting and also the annual report. Tonianne joined the Board in 2014 and is a member of the Audit, Risk and Compliance Committee, having chaired that committee until this July, and a member of the Nomination Committee. The Board has concluded that Tonianne is an independent nonexecutive director and unanimously supports her reelection. I invite Tonianne to address the meeting in connection with this resolution.

Good afternoon, ladies and gentlemen. Well what a year it's been. From bushfires to coronavirus, we're all having to learn to do things differently, and this AGM format is another example. I've prerecorded this address from my home here in Brisbane just in case the Internet lets me down on the day, but I will be online in the meeting and very happy to answer any questions that you may have directly. May I start by saying that I consider it a real privilege to be a director of your company and offer myself for reelection to your Board. I've now been on the Board of Metcash for 6 years, during which time, I've seen some real and tangible progress in pursuit of our mission of championing independent retail. I'll not pretend it's all been plain sailing. The industry has been fiercely competitive, and we have had our challenges as we have sought to lift the performance of our stores across each of our 3 pillars whilst, at the same time, living with price deflation and cost inflation. There have been some disappointments, but there have also been some real achievements, of which we can all be very proud, in particular, the improved performance of our Food pillar and the delivery of the new distribution facility in South Australia and the acquisitions of IHG and Total Tools into our Hardware business. More recently, as Rob and Jeff have mentioned, the bushfires and COVID-19 have posed huge challenges, and I'm very proud of the way the whole business has responded to keep our people safe and our customers supplied. My CV was set out in the Notice of Meeting. But for those of you who are unfamiliar with my background, I qualified as a lawyer in Western Australia before spending my entire executive career in London in investment banking and property =. My 17 years advising boards on M&A transactions, refinancings, restructurings and other corporate activity in the U.K. and Europe equipped me well for the role as a nonexecutive director. During that time, I saw most of the opportunities and challenges that companies encounter, providing me with a rich reservoir experience to draw on when required. Since joining the Metcash board in 2014, I've spent a lot of time getting to know the business, meeting our staff, our retailers and our suppliers. I shop in IGAs whenever possible and regularly interrupt family outings to drop in to Mitre 10s and Cellarbrations when the opportunity presents. I mentioned this because, as a Board member, I recognize that it's the experience of the shopper and our retailers that will ultimately determine our success, and that's best gauged personally and on the shop floor. In addition to attending our Board and strategy sessions, I've also served on several of the special subcommittees that we set up from time to time to assist management in the oversight of material transactions. Over the last couple of years, I've assisted with subcommittees overseeing the delivery of the DC in South Australia and the acquisition of Total Tools. Our use of subcommittees to bring focus and subject matter expertise to important issues for the Board is, I believe, one of our Board's real strengths. Since joining the Board, I have also served on the Audit and Risk Committee and for the last 2 years have acted as its Chair. Metcash is a complex business, and there's always something happening. So at the time of the departure of Patrick Allaway 2 years ago, the Board decided we should seek to appoint a qualified accountant with CFO experience to join the Board and become Chair of the Audit Committee. I agreed to hold the fort as Chair in the interim. We were all delighted when Peter Birtles agreed to join the Board at this time last year. He's eminently qualified and experienced and, as planned, has now taken over as Chair of the committee following the 2020 year-end. I will stay on the committee, and I look forward to working with Peter as he gets his feet under the table and also to aid with the transition of our CFO role from Brad Soller to Alistair Bell. In addition to serving on your Board, I'm also on the Boards of the DEXUS Property Group, ALS Group and OZ Minerals. These keep me current with issues in other markets that may be of relevance to Metcash and up-to-date on governance matters. I also serve on the Senate of the University of Queensland where I'm Deputy Chancellor. I greatly enjoy my time serving your interest here at Metcash. I believe my wide and deep experience as a director and my international M&A and capital markets experience brings another dimension to your Board, and I will be grateful for your support for my reelection. Thank you.

The resolution is now open for discussion. I will now read out and ask Tonianne to respond to the questions we received on this item in advance of the meeting. The ASA have submitted a question stating that Ms. Dwyer has a heavy workload with 5 other director roles and asking whether she could comment on this and the time she can devote to the Metcash Board. Tonianne, if you could, please respond.

Yes, certainly, Rob, and I hope you can hear me. And thank you for your question from the Australian Shareholders' Association. Look, I understand that it's really important for shareholders to be satisfied that the directors of their company are giving their responsibilities, the time and attention needed to be fulfilled properly. I take this role very seriously. I'm a professional nonexecutive director. It's my full-time job, and I treat it that way. So it's not something that I fit in between other things. In agreeing to seek reelection, I reflected on my capacity, and I am comfortable that I'm fully engaged with Metcash and have the capacity to fulfill my responsibilities as a director and to support the businesses required particularly during these challenging times. My colleagues have also confirmed that I'm pulling my weight with their endorsement of my nomination. My portfolio of roles has not changed in recent years and has been quite manageable. But I would note that I've recently stepped down from the Board of the Queensland Treasury Corporation, which gives me a little bit more time for other things. So I hope I've given you the assurance that you were seeking, but you can rest assured that I not only have the capacity to fulfill the role but also in continuing enthusiasm for Metcash and for supporting our independent retailers, and that sustains me in my endeavor on your Board. Thank you for your question.

I also thank the ASA for that question. I can absolutely affirm that in working with Tonianne, we never had to doubt her commitment or the time she makes available to try and make that business work more efficiently at Metcash. And I've never had concerns about her unwillingness to commit to work on any level at all. I think the fact that she's chaired our Audit and Finance Committee for us for the past 2 years and is now stepping back from that because she considers that the right thing for the business both shows she has the time but also shows that her core interest is always to put Metcash first. So I would recommend her to you as a director. I will now ask Steve to read out any questions on this item received online.

There are no other questions, Rob.

Steve just confirmed that there are no other questions on this item. So moving on, I will now move to our next resolution. Resolution 3 is to adopt the remuneration report. The remuneration report forms part of the directors' report for the company for the financial year. It is set out on Pages 37 to 54 of the 2020 annual report. Please note that the vote on this resolution is advisory only and does not bind the directors or the company. The resolution is now open for discussion. I will now, once again, first respond to the questions we've received on this item in advance of the meeting. The ASA have submitted 3 questions pertaining to the remuneration report. The first one, I think, is an opinion. There is a lack of clarity in the rem report. Can this be remedied next year? The answer to that is this is actually the most comprehensive remuneration report that we've ever prepared, and it has received applause from a number of the proxy advisers for the next level of disclosure and for its readability. So it's disappointing that you don't agree with them. Perhaps if you write to us with your suggestions for improvement, and we can have a look at these and consider whether we can build them into next year's report. I think we've done this in the past with the ASA, and that's worked both times, so I would encourage you to share your advice as to how we can improve it to your needs. The second question's, again, a couple of areas. The first was the dividends have decreased, the share prices declined, and the total shareholder return has weakened. Why are you paying bonuses? And regarding STI, the Board used its discretion in reducing STI, but it seems only the proportion in equity. Why is the STI still being paid in cash with no deferral period? Answers to that, firstly, I would like to point out that earnings rather than total shareholder return is the key determinant of our STI bonus pool. And STI outcomes for KMP are based on polls earned and balanced scorecard results, as shown in our remuneration report. The discretion applied by the Board was to reduce the entire STI amount, not just the deferred component. And the deferred component is issued in equity, not cash. In relation to shareholder returns, these are considered in the context of LTI awards. The FY '18 to '20 LTI partially vested at 71.9%, and the Board applied its discretion to reduce the vesting to pre-COVID-19 outcomes at 67.4%. It is important to note that LTIs for the next 2 years are well out of the money and unlikely to vest. And the last question from the ASA on this matter is why is the -- why the LTI is only 3 years and not 4 years. When the LTI was designed, our advice was that 3 years with standard market practice, and we understand that a number of companies still use 3 years. That said, we acknowledge the ASA recommends the period to be 4 years, and we undertake to take your recommendation into consideration when designing the next LTI. I will now ask Steve to read out any questions on this item received online.

No further questions, Rob.

Steve has just confirmed that there are no further questions on this item, so I thank you all for your questions received in advance. The final matter, the fourth resolution, the constitution of Metcash was last updated in 2005. And there have been a number of developments in law, corporate governance, principles and general corporate and commercial practice for ASX-listed companies since that time. The Board proposes to adopt a new constitution which reflects current market practice and terminology. Many of the proposed changes are administrative or relatively minor in nature. The principal differences between the current constitution and the proposed new constitution were outlined in the explanatory memorandum accompanying the Notice of Meeting. I hereby table the proposed new constitution, which has been signed by me -- you can see that, there it is, signed by me for the purposes of identification. The resolution to replace the constitution of the company is a special resolution and will only be passed if more than 75% of the votes cast by shareholders entitled to vote on the resolution are cast in favor of the resolution. The resolution is now open for discussion. Unlike the other resolutions, we didn't receive any questions on this item in advance of the meeting, so I'll now again ask Steve to read out any questions on this item received online.

No questions received.

Steve just confirmed that there were no questions received on this item. Ladies and gentlemen, that concludes our discussion on the items of business. In a couple of minutes, I will be closing the voting system. Please ensure that you've cast your vote on all resolutions. I will now pause to allow you time to finalize those votes. [Voting]

Thank you. I declare the voting closed. And thanks to the results I can see. I thank you all for your votes, and I declare that all the resolutions have been resoundingly passed by the necessary majorities, so thank you. As this concludes the formal business of the meeting, I thank you for your attendance and your ongoing support of your company. I would particularly like to thank you once again for joining our meeting virtually today and for your understanding in this challenging time. May you all stay safe and in the days and months ahead. And may you all continue to shop at IGA, Mitre 10, Cellarbrations or any of the rest of our brands where we'll be very happy to see you. I declare the meeting closed.