Metcash upbeat about future, maintains share of grocery market

Posted by Daniel Palmer on 2nd December 2008

Grocery and liquor wholesaler Metcash Limited has seen profit fall 7.1 per cent in the six months to October 31, 2008 due to a one-off interest hedging termination cost, but profit after tax and pre non-recurring item rose 12.9 per cent from $86.2 million to $97.3 million.

An 8.2 per cent rise in wholesale sales to $5.3 billion was recorded “despite challenging economic conditions and strong price competition in the retail sector”.

Metcash Chief Executive Officer, Mr Andrew Reitzer said he was pleased with the results of their three primary divisions in a challenging environment. “Metcash has performed strongly despite the Australian economy experiencing the effects of the international economic crisis,” he advised. “Each of our three main business pillars has generated higher sales and profits.”

The market share of the Australian grocery industry held steady at 18.8% “despite strong competition from the two dominant chains”, according to Mr Reitzer.

Supply chain improvements and investments in updating facilities and technologies saw a cut in their cost of doing business as a percentage of gross profit, but their interest rate hedging termination was a drag on their results. They do, however, expect to profit from the termination, as they can now take advantage of lower interest rates.

Metcash credited strong sales growth of 8.5 per cent on a comparable store basis for their grocery distribution business, IGA>D, to a focus on strong promotions, retail
execution, “local” market positioning and, particularly, independent retailer support. They also noted that supermarkets reaped benefits from the reduction in eating out.

During the half year, 21 new stores were opened, with a further 20 to be opened in the next six months.

Their liquor division, Australian Liquor Marketers (ALM), saw sales rise 5.1% despite the impact of the excise duty on pre-mix drinks. Beer volumes increased 28 per cent and they noted spirit sales have lifted 19 per cent since the Federal Government’s excise duty increase on pre-mix drinks, “largely compensating for the 11 per cent volume reduction of sales of pre-mix drinks”.

“This was especially pleasing in view of the continued push by the two national chains to increase their share of the liquor retail market with very aggressive pricing,” Mr Reitzer said.

Metcash remained upbeat about the coming months despite concerns about the economy. “Sales for the month of November 2008 continued to be satisfactory,” they reported. “Whilst the trading environment remains volatile, given the company’s focus on selling everyday consumer essentials, no likely weakening is expected in the markets served by Metcash.”

“Although the economic environment for the remainder of the 2009 financial year remains uncertain, as the effects of the global financial crisis flow through, each of the Metcash businesses primarily sell everyday necessities and are therefore in a good position to maintain growth in volume and profitability for the second half,” Mr Reitzer concluded.