Metcash half-year results ‘pleasing amid challenges’

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Metcash has reported that group revenue increased by 2.2 per cent to $6.2 billion for the half-year ended October 31 with all pillars delivering improved earnings. Food EBIT was up 2.4 per cent to $93 million.

Group CEO Jeff Adams said the first-half results were “pleasing in the face of challenging market conditions”.

“Our supermarkets pillar continued to face challenging market conditions,” he said. “However, it was encouraging to see a slowdown in the rate of deflation, which helped deliver an improvement in the sales trajectory for both ourselves and our retailer network.”

Food and liquor performance

Total food sales increased one per cent to $4.33 billion. Supermarkets sales were broadly flat at $3.6 billion, with sales growth on the eastern seaboard offset by a decline in sales in Western Australia.

Metcash says the decrease in deflation was a key driver of an improvement in the sales trajectory of wholesale sales (excluding tobacco), which declined 1.9 per cent. Most of this decline was in WA, which the group identifies as its most challenging market, although some improvement was evident in the half.

The sales trajectory of the IGA retail network improved, with like-for-like sales declining 0.2 per cent in the half.

Convenience sales increased 5.4 per cent to $762.9 million, reflecting sales growth from a large contract customer.

Total liquor sales increased 6.7 per cent to $1.8 billion (compared with $1.6 billion in 1H18) reflecting continued growth in sales to the IBA bannered group and ALM wholesale customers.

New SA distribution centre

Metcash signed a long-term lease agreement last month for the construction and leasing of a new “best in class” distribution centre at Gepps Cross in Adelaide. This followed the company’s long-term supply agreements, signed in August, with Foodland multiple store owners the Romeos and Chapleys, as well as the remaining members of the Foodland Supermarkets board, who are owners of Foodland stores in South Australia (excluding Drakes Supermarkets).

“The new DC is expected to improve the competitiveness of our South Australian retailers through the delivery of efficiency benefits and access to a greater range of products,” Mr Adams said. “Importantly, it reflects our ongoing commitment to championing independent retailers and further strengthens the foundation for continued investment in the network.”

The new 68,000sqm centre, which will service both the food and liquor pillars, will replace Metcash’s existing DC at Kidman Park in Adelaide. Construction of the new DC is scheduled for completion by mid-2020, at which time Metcash will transition to the new facility.

The current supply agreement with Drakes Supermarkets in South Australia will continue to June 2019.