Metcash is looking to increase its presence in the hardware market after seeing sales in this part of the business return to positive growth in the second half of FY20, thanks to a spike in DIY during COVID-19.
The wholesale distributor said on Monday that it is in the final stage of negotiations to acquire 70 per cent of Total Tools, a national franchise targeting tradespeople, for approximately $57 million.
Under the proposal, Metcash would provide Total Tools with a $35 million debt facility to support its growth plans and the potential future acquisition of interests in a select number of stores. Over time, Metcash would look to have a mix of store ownership, including both independently owned and joint-venture retail stores.
The deal, which is for Total Tools’ franchisor operations and one company-owned store, would give Metcash a clear pathway to acquire the remaining 30 per cent stake in Total Tools within the next three years.
Metcash said the acquisition is in alignment with its strategy to be the leading supplier to independents in all three areas in which it operates – food, liquor and hardware – and supports Total Tools’vision to remain a leading professional tool retail network.
Metcash’s hardware arm, which includes the Mitre 10 and Home Timber & Hardware chains, currently accounts for 14 per cent of group sales revenue. Food, including the IGA supermarket network, accounts for 61 per cent, and liquor for 25 per cent.
Total Tools has been operating for over 30 years and currently has 81 bannered stores nationwide. In the 2019 calendar year, it had sales of approximately $555 million.
The acquisition is subject to negotiation of final binding transaction documentation, which will be undertaken under a period of exclusivity, and approval by the competition watchdog, which recently gave the green light to Bunnings’ acquisition of tradie chain, Adelaide Tools.
$14.9 billion in revenue in FY20
Metcash also announced its FY20 results on Monday, including a 2.9 per cent year-on-year increase in group revenue to $13 billion. After taking charge-through sales into account, revenue totalled $14.9 billion.
Food and liquor sales both saw positive growth in FY20, despite the liquor category being adversely impacted by COVID-19 restrictions in March and April.
Food sales, including charge-through sales, increased 3.5 per cent to $9.1 billion, with supermarket sales increasing 3.8 per cent to $7.5 billion. This figure excludes Drakes sales, which Metcash stopped supplying from October 1, 2019. Convenience sales increased 2 per cent, mainly due to tobacco sales.
Total supermarket sales for the 10 months to February, which excludes the COVID-19-related bump in March and April, were up 0.2 per cent on the prior year. The IGA network saw 5.6 per cent like-for-like sales growth, with one net new store opening in the year.
Liquor sales increased 0.3 per cent to $3.7 billion. For the 10 months to February, liquor sales increased by 2.2 per cent.
Hardware sales decreased by 1.3 per cent year on year to $2.1 billion, due to a slowdown in construction activity which impacted trade sales and the loss of a large HTH customer in the first half of FY19.
Sales were down 2.8 per cent for the 10 months to February, but turned around in March and April thanks to a surge in demand for DIY products, such as paint.
The group reported a statutory loss after tax of $56.8 million, which includes the impact of the AASB16 leasing standard and a $242.4 million impairment to goodwill and other assets declared in the first half.
Underlying EBIT for the group, not including the new leasing standard, the impact of the loss of the Drakes business and lower contribution from lease resolutions, was $324.2 million, a roughly $12 million improvement from FY19.
The wholesale distributor said it is in a strong financial position after a recent equity raising and has seen continue sales growth in the first seven weeks of trading in FY21.