Shareholders in Australia’s third supermarket and liquor force, Metcash might have seen better than guidance numbers for its 2009 annual profit, but buried in the result was some possibly unwelcome news, a future dividend cut that could happen for the 2010 financial year.
But that could be a sign also of the company’s ambitions to do some acquisitions.
So any move to cut dividends would be to finance growth, not to hunker down, like so many companies have been doing.
The company said yesterday that "normalised" profit after tax and before first half non-recurring items grew 13.8% in the 2009 year, from $193.1 million to $219.7 million.
That was struck on a 9.3% rise in wholesale sales from $10.04 billion to $10.97 billion.
"The strong growth was above market guidance and was posted amid volatile economic conditions and continuing strong competition in the supermarket sector," the company said in a statement to the ASX.
Metcash revealed a final dividend of 14c per share, making the total dividend for the year of 24c. The dividend will be fully franked at 30%.
That’s up for both the final and interim of last year which totalled 21c a share.
But the company said in the final paragraphs of the press release that “Directors have previously stated the intention to return earnings to shareholders, while retaining adequate funds within the business to invest in future growth opportunities.
"The Board has determined that the company’s dividend pay out ratio should be at least 60 per cent of Earnings Per Share (EPS).
"In 2009 the total dividend of 24 cents represents 91 per cent of reported EPS or 81 per cent of pre-goodwill amortisation and non-recurring item earnings per share."
There was no further elaboration about whether the 2009 payout was a peak and that 2010 would be lower, or even maintained.
There was also no discussion of whether the board is comfortable with the current rate, or thinks that Metcash needs to generate more cash internally by lowering the future payout to shareholders.
But there was a suggestion in comments by CEO, Andrew Reitzer that the proportion of payout will change if the company makes an acquisition. He said several small ones could happen in the next year.
That would also depend on whether the purchase was paid for out of borrowings or a mixture of debt and cash flow.
Looking ahead to the coming year the company said it is looking for a 7%-10% rise in earnings in the 2010 year.
“Although the trading environment remains volatile and there are financial uncertainties affecting customers’ wealth and discretionary spending, we see no weakening of sales in consumer essentials – our core focus," CEO Andrew Reitzer told the ASX in the statement. This was subject to the usual provisos about unforeseen events.
The shares rose 3c yesterday to $4.21, which is around 5% under the 52 week high of $4.45.
Mr Reitzer said that “Metcash has delivered a strong result, with sales accelerating in the second half on the back of strong consumer support of our independent retailer customers.
"Our customers’ share of the grocery market, as measured by Nielsen, has lifted to 19 per cent.
“Another highlight of the year has been the continued reduction in our cost of doing business during the economic downturn, with our primary focus on supply chain improvements and technological innovations to improve warehouse productivity.
“We are continuing to invest in our core businesses to retain their competitiveness against the national chains and reduce costs.
“We are seeing consumers eating out less often and shopping more at our customers’ supermarkets.
“More Australians are holidaying in Australia and shopping at the widely dispersed IGA network of independent supermarkets.
“Australian Liquor Marketers, the company’s liquor division, generated strong sales and EBITA growth, which was an excellent performance in the face of aggressive price competition from the national chains and market uncertainty caused by changes to ‘pre mixed’ drinks excise.
“Our specialised convenience distribution division, Campbells Wholesale also performed well with solid sales and EBITA, with strong growth in the product categories of foodservice, soft drinks and confectionery."
Mr Reitzer said that the Metcash balance sheet remained strong with all funding lines in place and the company has successfully extended its $700 million syndicated loan facility to May 2012. Metcash’s key business, IGA Distribution, posted an 11.3% rise in sales.
"That translated into growth in earnings before interest, tax and amortisation (EBITA) of 14.7 per cent, to $315.5 million.
"Sales on a comparable store basis rose 9.0 per cent as consumers continued to support the IGA network of around 1,270 outlets across Australia.
"The division kept a strong focus on cost controls, while benefiting from the impact of the newly established Fresh business."
According to Chris Gosselin of Australian Fund Monitors, Australian-based Absolute Return and Hedge Funds recorded a second consecutive positive month in April of 2.71% on the back of the ongoing global rally in equity markets.
He said in a report for April, released yesterday, that "not surprisingly equity based strategies were the best performers,
