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Metcash Wields The Axe

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Supermarkets, liquor and hardware group, Metcash will report a big blob of red ink for its 2017-18 financial year later this month after taking an accounting axe to its asset base, lopping $352 million from the value of its supermarkets and convenience store business. The news was released to the markets before trading which saw Metcash shares lose 2.1% to $2.70.

A write-down became possible after the company revealed last week that it had lost a major supply contract in South Australia

These impairments follow the company’s year-end review of the carrying value of its assets, Metcash said yesterday.

"The review has taken into account the information contained in Metcash’s ASX release on 28 May 2018 concerning Drakes Supermarkets in South Australia, as well as weakness in the Western Australian economy and the ongoing intensity of competition in the sector. Last week, Metcash said last week Drakes would not commit beyond the end of the parties’ current South Australia agreement despite the supplier’s plans for a new distribution centre.

Total sales, including tobacco, to Drakes Supermarkets in South Australia were about $270 million in the year to April 30. The impairment charge comprises $318 million of goodwill and other intangibles, and $34 million of other net assets in the Supermarkets & Convenience group.

Metcash said the impairments are non-cash in nature, have no impact on the company’s debt facilities, compliance with banking covenants, or its ability to undertake capital management initiatives.

The total impairment charge of $352 million will be disclosed separately as a significant item in the company’s 2017-18 financial statements.

Metcash’s audited financial statements will be released on Monday, June 25. Metcash did not provide any guidance as to the full year results - a statutory loss will be reported.

The wholesaler last year reported a 20.6% fall in full-year net profit to $171.9 million, and warned of continued pressure on food sales amid tough market conditions.

In the interim report last December, directors had this to say about the rest of the year.

"In Liquor, the current modest level of growth in the overall market is expected to continue into 2H18, albeit there is some uncertainty over the impact of the recently introduced Container Deposit Scheme in NSW, and the roll out to other states. Liquor earnings are expected to be seasonally weighted to the second half of the financial year.

"In Hardware, positive sales momentum is expected to continue into 2H18. The business is confident of delivering between $20–$25 million of annualised gross synergies from the acquisition of HTH by the end of FY18. Hardware earnings are also expected to be seasonally weighted to the second half of the financial year.

"In Food, external headwinds including intense competition, particularly in South Australia and Western Australia are continuing. As with Liquor, there is some uncertainty over the market impact of the Container Deposit Scheme. Benefits from the Working Smarter program are expected to help mitigate the impact of these difficult market conditions.”

Metcash earned an after tax profit of $92.9 million for the first six months and reported earnings before interest and tax of $152 million.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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