Metcash H1 shows positive signs

Date : 06 December 2019

Metcash has released half year results for the period ending 31 October 2019, with group revenue including charge-through sales, up 0.5% to AU$7.21bn. Underlying EBIT declined 5.3% to AU$149.7m, mainly attributed to a lower contribution from the food business as a result of the loss of its contract with Drakes on 30 September in South Australia

Food sales including charge through increased 1.2% to AU$4.4bn

In the supermarkets business sales including charge through grew 0.8% to AU$3.6bn and had it not been for the loss of the contract to supply Drakes Supermarkets in South Australia, sales would have increased 1.2%. Wholesale sales, excluding tobacco, declined 0.3%. More positively sales trajectory improved versus the same period last year and excluding the Drakes impact, sales would have increased 0.3%. The first reported half year increase in non-tobacco sales since FY12.

Sales improved in all states, with Queensland the strongest performer and Western Australia showing significant improvement. In South Australia, sales excluding Drakes returned to positive growth with the Foodland stores performing well. While nationally, IGA retail stores saw LFL sales growth of 0.4%. Sales benefitted from Metcash's growth initiatives, price deflation of just -0.1% vs. -1.3% in H1 last year and further improvements to price competitiveness of retailers. Convenience sales grew 2.8% to AU$784.6m, driven by growth in tobacco sales.

Liquor sales including charge through increased 1.7% to AU$1.78bn

Growth in liquor was aided by the on-going trend of premiumisation towards higher value, but lower consumption. Wholesale sales from contract customers and non-bannered stores were boosted by the onboarding of new customers and growth of 'on-premise' sales. While sales to the IBA bannered network saw LFL growth of 1.7%. In the Hardware pillar, sales including charge through declined 4.2% to AU$1.04bn due to the impact of the slowdown in construction activity on Trade sales.

Significant achievements in H1

Group CEO, Jeff Adams, said, “The first half included some significant achievements for the Group, particularly in our Food pillar. The improvement in Supermarkets was broad-based with all states reporting an increase in the sales trajectory. It was also pleasing to see ‘like for like’ sales in our IGA retail network return to growth. We are continuing to work closely with our retailers and have made progress with implementing and accelerating initiatives under the MFuture program. Our financial position remains strong and this provides us with flexibility to fund our current initiatives, as well as consider future growth opportunities."

Signs to be more positive despite obvious headwinds...

Despite the headwinds of losing its contract with Drakes, plus in November announcing that it would not be renewing its contract with 7-Eleven following its conclusion in August 2020, these results show an improving picture for Metcash's sales. Growth has reportedly continued during the first part of H2, but the rest of the year will inevitably be impacted by the loss of the Drakes contract. Although there are still challenges ahead, Metcash is still in talks with 7-Eleven to continue suppling its stores in Western Australia, as well as a number of smaller categories on the east coast.