Embattled Metcash heads for the red

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Despite a boost in profits, Metcash will suffer a full-year loss after writing down the value of its operations by $352 million.

Metcash today released its financial results for the half year ended October 31, 2017.

The group generated sales revenue of $7.06 billion, an increase of 7.6 per cent on the corresponding period the year before. Underlying profit after tax rose 19.6 per cent to $99 million and reported profit after tax rose 24 per cent to $92.9 million (compared with $82.8 million and $74.9 million, respectively, last year).

It also reported an increase in earnings in food, saying in a statement: “a positive contribution from the convenience business and Working Smarter savings helped negate the impact of tough trading conditions experienced in the first half”.

These tough conditions are likely to include the news last week that Metcash’s largest South Australian customer, Drakes Supermarkets, would terminate its relationship with Metcash and begin sourcing its own groceries.

This morning, Metcash announced a write-down consisting of a $318 million impairment against goodwill and other intangible assets, and $34 million against other assets in its supermarket business. This write-down casts a dark shadow over the brighter results for the half year.

Nevertheless, outgoing group CEO Ian Morrice remained upbeat: “The first half results were very pleasing despite the continuation of some of the most challenging market conditions in our history. It was good to see earnings growth across all our pillars, as well as strong operating cashflows.”

Incoming CEO Jeff Adams added: “The company has a good portfolio of businesses, a very strong and capable management team, and the strength of its financial position provides significant strategic flexibility for the future.”

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