Metcash net profit rises 3pc to $95.8m

Sue Mitchell
December 3, 2018
AFR
Wholesaler Metcash’s net profit rose 3 per cent to $95.8 million in the six months ended October 31 as strong growth in hardware and modest gains in food and convenience were partially offset by weaker liquor earnings following the adoption of a new accounting standard which excludes charge through sales.
Group earnings before interest and tax rose 1.2 per cent to $158.1 million – up 1.9 per cent before the adoption of new accounting standard AASB15 – beating forecasts around $153 million as group revenues rose 2.2 per cent to $6.2 billion (excluding charge through sales of just under $1 billion).
“We think this is a pretty good set of results we’ve put together, based on the challenges out there in the market,” said group chief executive Jeff Adams.
“Overall we’ve seen some good improvement half on half,” he said.
Earnings from food wholesaling rose 2.4 per cent to $93 million (up 1.1 per cent pre AASB15), boosted by about $11 million in cost savings from Metcash’s $125 million three year Working Smarter program, which ends this year, easing deflation, and a $7 million gain from unwinding onerous lease provisions.
Prices for wholesale fresh and packaged food and groceries fell 1.9 per cent, an improvement on the 3.7 per cent decline in the year-ago period.
Supermarket sales (including charge-through) were broadly flat at $3.6 billion and sales to IGA retailers declined just 0.2 per cent on a same-store basis, an improvement on the 1.1 per cent decline in the same period last year, dragged down by Western Australia, where IGA stores are losing share to Aldi.
Convenience sales rose 5.4 per cent to $762.9 million, buoyed by sales growth from a large contract customer.
Hardware earnings rose 34 per cent to $37.8 million (up 37.6 per cent pre AASB) , buoyed by about $7.5 million in synergy benefits from the merger between MItre 10 and with Woolworths’ Home Timber and Hardware business two years ago. Total sales rose 1.3 per cent to $1.09 billion and same-store sales by 3.3 per cent.
Liquor EBIT slipped 1 per cent to $29.1 million after the adoption of AASB15 but was up 5.4 per cent before the new accounting standard as sales rose 6.7 per cent to $1.8 billion.
Mr Adams said the first-half results were pleasing but warned that industry conditions remained highly competitive and second-half earnings would be hit by about $8 million of additional investment in the supermarkets business.
“We are, however, encouraged by the slowdown in the rate of decline in non-tobacco sales and progress on key initiatives in the first half,” Mr Adams said.
In hardware, Metcash expects new construction and DIY activity to soften over the rest of the year but overall levels are expected to remain above historical averages. Metcash also expects to realise the last of about $34 million in synergy benefits from the acquisition of Home Timber and Hardware.
Metcash shares slipped 2.5 per cent to $2.70 in early trade.
Mr Adams said Metcash’s  balance sheet was strong, although net debt at the end of October was $85.2 million compared with a net cash position of $42.8 million at the end of 2018 due to Metcash’s  $150 million off-market share buy-back in August.
Metcash increased its interim dividend from 6¢ to a fully franked 6.5¢ a share, payable on January 18.