METCASH LIMITED – HALF YEAR RESULTS

METCASH LIMITED – HALF YEAR RESULTS

METCASH RECORDS GROWTH IN TOUGH CONDITIONS
• Reported revenue rose 3.5% from 1H12 to $6.34 billion
• Wholesale sales rose 3.5% from 1H12 to $6.28 billion
• EBITA grew 1.2% from 1H12 to $206.2 million
• Underlying Profit After Tax grew 4% from 1H12 to $121.3 million
• Reported Profit After Tax 1H13 of $82 million
• Operating cash flow 1H13 of $144.7 million
• Underlying earnings per share 1H13 of 14.5 cents per share
• Reported earnings per share, after significant items and discontinued operations
(Franklins Retail Stores) 1H13 of 9.8 cents per share
• Dividend per share 11.5 cents fully franked
Metcash Limited today released its first half results for 2013. The company announced it
had lifted Earnings Before Interest, Tax and Amortisation (EBITA) 1.2 per cent from $203.7
million for 1H12 to $206.2 million for 1H13.
The result was achieved on a 3.5 per cent rise in wholesale sales from $6.07 billion in 1H12
to $6.28 billion.
The growth in EBITA was achieved despite continuing headwinds including, tough trading
conditions, continuing price deflation and aggressive marketing campaigns being run by the
major self supply chains.
The company declared an interim dividend of 11.5 cents per share fully franked, consistent
with the prior corresponding period.
Andrew Reitzer, CEO of Metcash, said the core business remains strong and acquisitions
are adding value. “Revenue, underlying earnings and cash flows are all strong. Our net
working capital position has improved and our strategy of diversifying the business is
beginning to show results,” he said.
BUSINESS PILLARS’ PERFORMANCE
Metcash Food & Grocery (F&G)
The F&G business increased sales by 0.4 per cent to $4.6 billion, however EBITA fell 5.4
per cent to $175 million over the same period.
Increased sales as the result of the Franklins acquisition were largely offset by the impact of
the Campbells warehouse closures and the loss and closure of a number of stores including
the Cornetts/Walters restructuring. Savings from the Campbells warehouse closures are
expected to have a favourable impact in 2H, as the full impact of the wind down and
closures are realised.

F&G experienced negative operational leverage due to elevated promotional volumes
causing inefficient supply chain peaks. During the half Metcash invested heavily in large
marketing programs across the country. The National Locked Down Low Price campaign,
and more recently a major relaunch of Supa IGA in NSW were successfully implemented.
During the half, deflation in packaged grocery was 0.7 percent and in Fresh Produce it was
13 percent. Market share in the last quarter was down 0.2 per cent on last year primarily as
a result of WA where deregulation of shopping hours was introduced.
During 1H13, 21 new stores were added to the IGA family with another 38 due to be
completed by FY13. When conversions and extensions to existing IGA stores are taken into
account this means an additional 28,273 square metres of floor space was added during the
Half, that number should rise to 70,099 square metres by the end of the financial year.
The growth in Fresh Produce continued with the introduction of the Harvest Market
franchise concept. The first three stores are up and running with several more in the
pipeline.
The Franklins stores have increased our quarterly market share in NSW by 32 percent.
However the 18 month delay in the Courts, and the subsequent delays with landlords and
retailers, has resulted in more of the marginal Franklins stores needing to be closed than
anticipated. Of the 90 Franklins stores, 58 stores have been sold and handed over or are
expected to be sold, five stores are under review, while 27 stores have been closed or are
likely to be closed.
Investment in supply chain improvements is continuing. The KNAPP mini loader at
Huntingwood has now been commissioned, it utilises the latest single pick technology and
will enhance our offer to the convenience sector. The proof of concept for our warehouse
automation, Project Mustang, has been successful and we will be progressing to the next
stage in the New Year with an expected ‘go live’ of September 2014.
Australian Liquor Marketers (ALM)
ALM continued to perform strongly with sales up 14.9 per cent and EBITA growing 26.7 per
cent to $16.6 million. The new LMG sales volumes began in October.
IBA sales have grown by 16 per cent and volume has grown by 13 per cent. The joint
venture investments in the pub sector have seen one hotel acquired with several more
acquisitions expected in coming months.
The strong volumes and a continued focus on CODB have resulted in a strong first half.
Hardware & Automotive
Sales, inclusive of the new ABG business, have increased 6.3 percent to $454.2 million
compared to 1H12 while EBITA has grown 72.4 percent to $15 million. The strong
performance is a result of network expansion, improved buying prices and a stronger market
presence and the contribution of the new ABG business.
While Mitre 10 trade sales are slightly behind the last half due to a slowing building
construction sector retail sales broadly compensated for this. There have been 35 stores
that converted to Mitre 10, and three new joint ventures have been set up. The Natbuild
alliance is underway and will improve the expanded network’s buying power and ability to
serve the trade.
Sales in ABG’s retail groups are in line with expectations and growing market share. Like
for like franchise sales are in the high single digit range. ABG has begun to benefit from the
synergies that have come from integrating the business into Metcash.
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THE FUTURE
Mr Reitzer said the results were encouraging in such challenging conditions. “The
deflationary trading conditions are expected to continue and we are now expecting to
maintain the higher marketing spend into the second half of the year.
“Despite the conditions, IGA has seen market share marginally decline by 0.2 percent over
the last quarter due to WA trading hours deregulation, JV restructures, and more former
Franklins stores closing than expected.
The Supa IGA launch in NSW has been very successful and we are seeing the Franklins
stores performing strongly once they are in the hands of IGA retailers. The strategic
importance of the Franklins purchase cannot be underestimated, it was critical to boost our
presence in NSW.
“The strong performance of ALM is a real highlight for the half and we are looking forward to
their result being stronger in the second half as the LMG contract is bedded down. Mitre 10
has enjoyed strong retail sales and network growth. ABG has performed well and their
contribution is in line with expectations,” Mr Reitzer said.
Mr Reitzer said there were some negatives in the numbers which were disappointing. “The
number of Franklins stores that had to be closed or will be closed was higher than
anticipated and the stores had deteriorated more than expected as a result of the delay in
the sale. This coupled with the loss and closure of some stores and loss of operating
leverage due to ongoing deflation will have to be managed carefully in the second half of the
year. Therefore due to the combined impact of these factors the company revised our Full
Year Underlying EPS Guidance to -2% to -6%,” Mr Reitzer said.
Management remains optimistic that the business model is adaptable to the changing
market. New growth initiatives are being adopted including new concept stores, ‘go to
market strategies,’ improved marketing, further supply chain automation and network
expansion. Several acquisition opportunities are still being carefully considered against the
company’s investment criteria.

 

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