Metcash smashes profits

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Metcash, the operator of IGA supermarkets, has returned to profit, rebounding from a loss and beating expectations for its full year result.

It posted a $216.5 million after tax profit for the year to April compared to a $384.2 million loss the year before.

Analysts had expected around $180 million.

Sales revenue was up 1.3% to $13.5 billion.

Its shares are up about 30% this year. In early trade today they were up more than 2% to $2.17, well above the year low of $1.48, but later fell 11% to $1.87.

Price discounting on shelves squeezed margins.

Food and grocery EBIT (earnings before interest and taxes) fell 17% to $179.9 million. However, supermarkets earnings improved in the second half as the price cuts started to bring in more business.

Metcash says the solid financial position underpins plans to restart half yearly dividends from the 2017 year.

The supermarket operator has reorganised its business, cutting jobs and shaving costs.

However, the company says the market is still highly competitive. “The food and grocery business continues to face headwinds from competition, deflation and a rising cost base,” it says.

Total food and grocery sales increased 0.5% to $9.3 billion.

However, IGA store like-for-like retail sales increased 1.4% representing the fourth reporting period of growth.

“This demonstrates the improving underlying health of our retail network and the positive impact of the group’s transformation initiatives,” the company says.

CEO Ian Morrice says key supermarket initiatives are delivering returns.

“The strong focus on capital and cash management has delivered a significant reduction in debt which positions the group well to deliver its transformation initiatives as well as invest in growth opportunities,” he says.

Net debt has been reduced by $392.3 million to $275.5 million. This includes $242.1 fromt he sale of Metcash’s automotive business and $57.3 million from the sale of other assets.

The results in detail:

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