Metcash boss Ian Morrice under fire as profit falls while turnaround’s delayed

John Durie
DECEMBER 02, 2014
THE AUSTRALIAN
IAN Morrice has embarked on a Metcash revamp at the worst time, with consumers cautious, the stockmarket negative, and the early signs on the shop floor are not great.
This means as confident as the likeable Scot is that his turnaround plan is poised for big things, the evidence is not exactly there to show for it quite yet.
Morrice has more revamps going on at Metcash than most have had hot dinners, but the bottom line is after reporting earnings of $165 million in the first half, Metcash will report only $155m in earnings before interest and tax in the second half.
Margins on his food and liquor stores have fallen to a touch over 2 per cent, half what they were in the 2013 financial year.
The revamp is running six months behind schedule, but Morrice is confident when it hits it will work.
His problem is that his competitors are not standing still, and the folk at Aldi are wreaking havoc.
Nielsen figures show the ­majors, Coles and Woolies, have boosted Aldi’s rollout by pushing their own house brand lines and in the process making Aldi look good.
Aldi has been in Australia since 2001 so it has had more than enough time to show its wares, and is now embarking on a national rollout for the first time.
With $3.5 billion in sales it is poised to crack the $5bn mark shortly and none of this is helping either of the majors or, for that matter, Morrice.
The recent focus on the Aldi ­revival comes as the major British supermarket chains are beaten by Lidl and its German comrade, which is why the stockmarket sentiment is weak.
The Aldi parade is also self-serving to some extent because if it can establish itself as a must-have for the next shopping centre then that translates into better rental deals.
Morrice has his own house brand line in Black and Gold, but he is starting from behind.
The only division showing some signs of growth is Mitre 10, which is taking share from Danks at a time when rival Woolworths is struggling with its Masters rollout.
Metcash has a $625m capex program in place, complete with a new supply chain initiative and ­robots all over the distribution centre.
It’s a transformational story, which tells you Andrew Reitzer was clearly looking the other way when his competitors were doing the very same things that Morrice is doing all at once right now.
The Metcash-supplied supermarkets including IGA have about 15.5 per cent market share, which is down 2 per cent at least from recent peaks, and this is where the challenge lies to boost performance through a better fresh offer.
In convenience, Metcash supplies BP and 7-Eleven and in all some 17 per cent of the sector, which is someway short of the 30 per cent Morrice is aiming for.
He might be on the verge of greatness, but the trouble is right now his costs are rising, cashflow is falling and sales in real terms going backwards. In short there is not a lot of evidence for a sceptical stockmarket to grab hold of and a consumer market which is going nowhere fast.
Rate rigging
AUSTRALIAN Securities & Investments Commission boss Greg Medcraft is ­talking up his campaign against the local banks for alleged market rigging just as the Murray report is due to speak out against the ­cultural problems for the industry.
ASIC has 10 of its 60-strong market surveillance team looking at the alleged rigging of the bank bill swap rates, which is a market-wide inquiry, yet so far only three foreign banks have offered ­enforceable undertakings and only ANZ has admitted it is being probed.
ANZ did so in part because it was bonus time at the bank and the decision was made not to grant big bonuses to the traders involved in the investigation.
That’s where the culture bit comes into it, because banking is not the cash cow it once was for staff so they have tended to look for ways to revive past memories.
As noted last week, the financial services industry is a cultural minefield in part because its stock trade is money.
It is truly breathtaking that only ANZ has at least admitted it has an issue with a global ­practice that would involve other Australian banks, which itself is another leg to the culture story
None of which helps the bank bosses’ credibility when they cry poor and seek leniency.
Market chaos
THE market has fallen just 6 per cent since its November highs but the chaos is there for all to see, with resources stocks leading the way. Now is not the time for profit warnings and Metcash is now at 10-year lows, falling 16.5 per cent at $2.18 a share.
In the ASX 200, some 24 stocks fell more than 10 per cent, which is official correction level. BHP fell 5.5 per cent to $29.27, which is the first time it has traded below $30 since 2009.
All the big oil and gas stocks are down massively as OPEC does to the global oil market what BHP and Rio are doing to the Chinese iron ore market — pumping out more supply at depressed levels, which is pushing prices lower.
Wall Street is back in action now after its holiday-shortened trade and it will set the sentiment in the near term, but right now it is a bloodbath on the commodities floor.
The $60bn Gladstone LNG project at present levels is uneconomic with average costs at a Brent equivalent of $US65 a barrel, while Oil Search is looking a touch better at PNG at $US48 a barrel.
Much of the oil production is contracted with guaranteed minimum prices, but with Brent crude now at $US69 a barrel you can see why Oil Search was down 8.5 per cent at $7.29 a share yesterday and Origin down 4.5 per cent at $11.70.
BHP is down because all its key commodities are being trashed, including its shale oil business in the US.
This sort of volatility brings out block trades and the traders at UBS managed $660m of block trades last week and yesterday continued the trend.
UBS yesterday did a $45m block in Myer, or 28.3 million shares at $1.60, and $43m worth of Metcash, or 18.8 million shares at $2.25.
The Metcash and Myer sales were said by some to be part of the post-management reshuffle at Colonial.
The CBA offshoot has revamped its Australian equities desk with two people leaving and Marcus Fanning assuming increased control over the $8bn-plus growth fund and the concentrated equities fund among others.
Naz Ressas, who has run the concentrated fund for the last seven years, has left the firm, as has Oliver Anstead.
The division is also being restructured with a search for a new position running the Colonial research analysts.