Investors took their revenge on Metcash (MTS) yesterday for shocking the market with a massive $604 million write down and the suspension of the dividend not only for the last half of the 2014-15 financial year, but 2015-16 as well.
The shares plunged more than 17% to close at $1.14. It’s the lowest Metcash shares have been in a decade or more, such was the astonishment and concern among investors yesterday.
The write-offs, impairment and dividend suspension resulted from a review of the company, its trading position, the outlook and asset values.
As a result of this review, Metcash said it will reduce the carrying value of the Group’s goodwill and other assets by $640 million.
Metcash said it will recognise an impairment of $507 million in relation to intangible assets (goodwill of $442 million and other intangible assets of $65 million) and a further charge of $133 million in relation to other assets and obligations, predominantly in the Food & Grocery business.
Following these impairments the Group’s net assets will be in excess of $1.15 billion
The total charge of $640 million will be included as a significant item in the year end results and excluded from the Group’s underlying earnings. Metcash said the impairment is primarily non-cash in nature and will not impact the Group’s debt facilities, compliance with banking covenants or trading terms.
And the company said that in response to the difficult trading environment in supermarkets and food, it will take another of “a number of steps to strengthen its balance sheet”.
MTS 1Y – Dividends disappear at Metcash
On 14 May 2015 Metcash announced it was investigating a potential IPO of its Automotive business and that the proceeds from this sale would be invested in the Group’s balance sheet and businesses, the company said. That news saw the shares run up to a recent high of $1.44 on Monday of this week. The fall from that level is in the order of 21%.
Group CEO Ian Morrice said in yesterday’s statement that “While we are making progress with the Group’s strategic priorities, the Food and Grocery Pillar is operating in an increasingly competitive environment.
"We have completed the first year of our transformation plan and these capital management initiatives will provide a foundation from which the Group will continue to deliver the priorities in our strategic plan.”
Metcash will report its full year results on June 15 – or in 10 days time. They won’t make for good news, even discounting for the huge write-downs and other losses.
The company is suffering from the increasingly tough and competitive grocery market as Coles monsters Woolworths, which is fighting back, and the big two are being attacked by Aldi and Costco.
Metcash supplies the IGA chain and its 2,000 outlets of varying sizes, and has the Mitre 10 hardware chain, and the AutoBarn chain of car parts is the 5th and most vulnerable of the supermarket chains.
