Metcash, the country’s third force in supermarkets and the dominant independent group, is expecting no change in its outlook after lifting earnings and sales solidly in the tough first half of 2008-09.
The company yesterday reported a 7.2% fall in interim net profit after recording a one-off interest hedging termination cost (that was foreshadowed last month).
Metcash confirmed its 2009 earnings guidance which was in the range of 28.3c to 29.3c per share before non-recurring items.
The company said yesterday that “Whilst the trading environment remains volatile, given the company’s focus on selling everyday consumer essentials, no likely weakening is expected in the markets served by Metcash".
Metcash shares rose 8c to $4.08 yesterday in a market hit by more selling.
After tax and before non-recurring items rose 12.9%, from $86.2 million to $97.3 million for the six months to October 31, 2008.
The result came on an 8.2% rise in wholesale sales to $5.3 billion, despite the slowing pace of retailing demand and a sluggish domestic economy overall.
Directors have declared an 11.1% rise in the interim dividend to 10c per share – fully franked at 30%.
Metcash CEO, Andrew Reitzer said in the profit statement that: “Metcash has performed strongly despite the Australian economy experiencing the effects of the international economic crisis. Each of our three main business pillars has generated higher sales and profits.
“Despite strong competition from the two dominant chains, our market share has held steady at 18.8 per cent and our operating cash flow has also held at $101 million, after $5 million in additional net interest costs.
“Another pleasing aspect of the result has been a 3.68 per cent cut to 64.3 per cent in the cost of doing business as a percentage of gross profit, as a result of supply chain improvements and our investment in facilities and technologies to lower the cost of warehousing and distribution.
“As a consequence of the company terminating its interest hedging arrangements (refer to announcement 12 November 2008) and treating the cost as an abnormal or non-recurring item in the current half’s results, it will now be possible to take advantage of the current and expected lower interest rates."
Metcash took a $17 million charge to abandon interest rate hedges. Metcash scrapped the hedges, which capped the maximum interest it pays on debt, because rate cuts by the Reserve Bank had fallen faster than it had expected.
IGA Distribution, the main division of the company, increased earnings before interest, tax and amortization 13% to $146.5 million after adding products including fresh fruit, vegetables, meat and bakery items.
Campbell’s, the wholesale supplier of confectionery and groceries (especially to convenience stores, which are a growing segment of the market, and corner shops), had an 8.5% increase in earnings to $15.8 million.
Australian Liquor Marketers lifted profit 8.3% to $14.4 million.
Metcash’s Mr Reitzer said in his statement:
“Metcash’s key business, IGA Distribution delivered another great result which underpinned the group’s overall strong performance. Wholesale sales increased by 9.8 per cent, with comparable store sales up 8.5 per cent. This was an excellent result in the face of strong competition from our two chain competitors.
“The business also benefited from the return to service of the Blacktown dry grocery distribution centre following extensive storm damage last Christmas, enabling the Queensland and Victorian distribution centres to focus solely on servicing customers in their respective states.
"The progressive growth of the Fresh business has also provided a major benefit to this division.
“Australian Liquor Marketers, the company’s liquor division, generated good sales growth with sales increasing 5.1 per cent for the half year. This was especially pleasing in view of the continued push by the two national chains to increase their share of the liquor retail market with very aggressive pricing.
“The specialised convenience, wholesale and distribution division, Campbells Wholesale also demonstrated strong growth, with sales 6.6 per cent above last year and sales of the important primary product categories rising 10.3 per cent."
"Sales for the month of November 2008 continued to be satisfactory. Whilst the trading environment remains volatile, given the company’s focus on selling everyday consumer essentials, no likely weakening is expected in the markets served by Metcash."
