Metcash, Australia’s largest grocery wholesaler has been taking a bit of a battering in the past week in the ACCC’s inquiry into grocery prices.
In fact Metcash CEO, Andrew Reitzer was forced to fly to Melbourne this week to appear to defend Metcash’s wholesaling activities and the way price discounts are worked out for smaller format IGA store operators in particular.
So it was probably a welcome relief from this sudden lift in regulatory pressure that saw him announce the company’s 2007-08 profit and a stronger-than-expected 18% jump in full-year earnings, thanks to strong growth in fresh food sales.
The shares rose 3.4% to a day’s high of $4.22 before easing slightly to end up 11c at $4.19.
The grocery and liquor wholesaler, distributor and marketer posted a 24.51% increase in net profit to $197.436 million for the year ended April 30.
Metcash also forecast fiscal 2009 earnings per share (EPS), pre-goodwill amortisation, of between 28.3c and 29.3c, compared to a 16.7% rise to 25.86c, or 26.64c on a normalised basis in the year to April.
Mr Reitzer said the higher EPS forecast came as sales in May continue to be satisfactory, "despite volatile market conditions with higher fuel prices, food inflation and higher interest costs affecting consumers negatively".
In a statement to the ASX, Metcash said wholesale sales rose by 6.3% to $10 billion; EBITA grew 10.1% to $341 million; EBITA margin increased to 3.40% from 3.28%; net profit after tax increased 18.4% to $197 million; the Cost of Doing Business as a percentage of gross profit fell by 1.65% to 65.21% and the dividends increased 23.5% to 21c fully franked, from 17c a share the previous year.
The company said a final dividend of 12c a share would be paid, compared to 10c for the previous corresponding period.
Wholesale sales rose 7.4% from $5.6 billion to $6 billion, with EBIT to sales margin rose from 4.43% to 4.59%.
The company said that while the performance of the division was impacted by the Blacktown closure, IGA continued to post solid gains through very strong support from customers and suppliers, as well as the implementation of a very solid business model and the successful implementation of IT and logistics initiatives.
IGA opened 55 new stores across Australia, while 95 stores were refurbished, with plans for another 38 new store openings in the new financial year. Metcash’s establishment of a bank backed $100 million refurbishment fund has attracted great interest from retailers, with 96 refurbishments planned for the new financial year.
The new IGA Fresh division posted 10% sales growth to $566 million, with an experienced management team in place and the business now structured in key product categories, covering meat, bakery, deli and produce (fruit and vegetables).
Sales of fresh produce and meat rose 17% to $117 million, with a recruitment program expected to increase the fresh field force by 140% over the next year.
The business is on track to have a national network of dedicated distribution centres by December 2008, with a range of acquisitions underway and capital expenditure expectations of up to $100 million to develop the network.
Campbell Wholesale experienced further growth, with sales increasing 9.4% from $1.4 billion to $1.55 billion, and EBITA growth of 5.8% to $30.6 million.
The record result was driven by continued strong sales growth in confectionery and primary stock categories, while new account wins and organic growth saw the division’s convenience market share rise to 33%.
This is despite the interruptions to Campbells’ supply chain by the Blacktown warehouse disruption, heavy discounting and petrol deals promoted by the major chains.
ALM’s sales increased 1.9% from $2.4 billion to $2.5 billion, despite the Hedley/Coles contract loss creating a $108 million impact.
EBITA turned around to rise 10.1%, despite the loss of the contract, from $28.4 million to $31.2 million.
Further investment in IBA marketing and banner consolidation and growth has seen IBA’s membership grow to 2,417 independent outlets, while 410 Liquor Alliance hotels have been branded as Thirsty Camel, creating a clear brand position for consumers.
Mr Reitzer confirmed that Metcash wants to expand, saying the company had been short-listed in a bid for a pharmaceutical wholesaling business being sold by Primary.
Primary wants to sell two businesses to recoup some cash after its $2.7 billion takeover of Symbion Health.
The pharmacy distribution and consumer businesses combined could fetch around $900 million: they were sold to two private equity groups in the deal between Symbion and Healthscope that was blocked by Primary. The sale fell over.
Metcash hopes to use its logistics and supply chain expertise to run the pharmacy business more efficiently.
Metcash had formed a joint venture with Sigma Pharmaceuticals to bid for the assets, but Sigma was unsuccessful with its bid for the consumer unit.
