Metcash raises funds as profit disappoints

June 28, 2012
The Age

Grocery wholesaler Metcash said it would raise $325 million with the funds to be used to expand in automotive parts and to purchase the rest of hardware group Mitre 10.

The company also revealed a full-year profit of $90 million, less than the $135.9 million expected by analysts according to Bloomberg.

The annual result was also down 63 per cent on a year earlier, with the company blaming the cost of restructuring its operations and the acquisition of Franklins for the drop.

Metcash shares are in a trading halt and last changed hands at $3.74. The company said the price of the new shares would hinge on demand. The Australian Financial Review earlier reported the price would be in the range of $3.46-$3.56, implying a discount of as much as 7.5 per cent on its last price.

Metcash will pay a final dividend of 16.5 cents.

Results
The company says its sales rose slightly in the year to April 30 to $12.4 billion and underlying profit grew by 2.5 per cent to $262.5 million.
But costs associated with its restructure, the acquisition of Franklins and an impairment on one of its businesses totalled $176.7 million.
Underlying earnings of $451.2 million in the year to April 30 were up 3 per cent from the previous year, in line with Metcash’s previously issued guidance.
‘‘We are pleased to announce a full-year result that meets our guidance despite the tough trading conditions,’’ chief executive Andrew Reitzer said in a statement.
Metcash expects underlying earnings per share to rise in the low- to mid-single digits this year.

Acquisitions
The company’s acquisitions include the purchase of 75.1 per cent of Automotive Brands Group (ABG), a privately owned car parts business, including the Autobarn and Autopro stores.
Metcash said it would pay $53.8 million for the controlling stake in ABG, and could take full ownership of the business over the next three to five years.
It also will use the capital raising funds to upgrade its warehouse distribution system and to pay for its recently announced buy-out of the Mitre 10 group.
Each of the acquisitions was expected to generate earnings in the 2012/13 fiscal year, Metcash said.

Blame the war
The company blamed the marketing war between Coles and Woolworths, weak consumer sentiment and a strong Australian dollar for the decline in dry grocery and fresh produce.
“The company’s continuing focus on the cost of doing business resulted in it falling from 62.72% of gross profit to 61.45% as warehouses continue to be consolidated and upgraded,” it said.
The company will also spend $70 to $80 million over the next two years on automating its picking processes, which it said would reduce costs and make its products cheaper for grocery retailers.
“The new equipment will improve picking efficiencies, as the equipment to be employed has the capability to pick store orders in the exact store layout sequence, making unpacking and re-stocking more efficient.”
It said it expected to complete these deals by the end of the year.
BusinessDay with Jane Lee, Bloomberg and AAP

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