Metcash half-year results tumble on lost supply contracts

Despite growing sales in its food and liquor pillars retail group Metcash delivered a net loss of $152 million in 1H20.

The result was impacted by $249.3 million impairment due to the loss of the 7-Eleven contract, as well as Drakes Supermarkets in South Australia and the introduction of a new accounting standard.

Before the impairment, the company delivered an underlying profit after tax of $90.6 million, down on the $100.3 million delivered during the same period of FY19. 

According to Metcash group chief executive Jeff Adams the first half included significant achievements for the group, despite the losses.

“I am pleased to report that our Supermarkets business delivered wholesale sales growth, including on an ex tobacco basis after adjusting for the impact of ceasing to supply Drakes,” Adams said. 

“This is the first reported increase in wholesale sales ex tobacco since FY12.”

Total Food sales increased 1.2 per cent to $4.4 billion, with sales improving across all states. 

Like-for-like sales at IGA improved 0.4 per cent, while Convenience sales increased 2.8 per cent. Food EBIT, however, fell to $88.4 million, impacted by lease obligations and the loss of supply to Drakes Supermarkets. 

Total Liquor sales increased 1.7 per cent to $1.78 billion, which Metcash attributed to the continued trent of lower consumption, but higher quality liquor sales.

The sales uplift led to a Liquor EBIT of $30.7 million, up on the $29.1 million reported in FY19. 

A slowdown in construction activity and trade pushed Hardware sales down 4.2 per cent to $1.04 billion for the half. EBIT increased to $38.9 million, up on the $37.8 million delivered in 1H19, largely as a result of the increased level of retail sales pushing EBIT margin higher for the period.

The first five weeks of the business’s second half has seen these trends continue. 

Supermarket sales have grown, although Metcash expects 2H20 results will be impacted further by the loss of the supply contract to Drakes South Australia. 

Metcash’s Liquor division is expected to continue to be influenced by changing consumption habits – the premiumisation trend of lower consumption but higher quality. It will also prioritise private and exclusive labels, the ‘on premise’ market, and its digital offering. 

Slowing trade sales are likely to continue to dampen Hardware sales, though the business is continuing to focus on cost to offset the impact. Metcash believes the hardware market will remain positive over the medium to long term, with construction activity predicted to grow on population growth and an undersupply of housing. 

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