Shares in Australian-listed Metcash Limited have been whacked this morning having fallen 4% on Wednesday.
Today the company announced asset write-downs of $640 million and suspended dividend payments for this year and next.
The arrival of Aldi and CostCo in Australia is transforming the grocery sector across the country. Earlier this year Deutsche Bank analysts flagged a looming price war that would squeeze margins for the sector’s major players – Woolworths and Wesfarmers-owned Coles. This has subsequently played out in earnings reports.
Here’s a snippet from the Metcash statement released today.
“The Group has carried out a comprehensive review of the carrying value of its assets as part of the year-end process. This review took into account the increasingly competitive trading environment, particularly in relation to the Food & Grocery Pillar.
As a result of this review, Metcash will reduce the carrying value of the Group’s goodwill and other assets by $640 million. The Group will recognise an impairment of $507 million in relation to intangible assets (goodwill of $442 million and other intangible assets of $65 million) and a further charge of $133 million in relation to other assets and obligations, predominantly in the Food & Grocery Pillar. Following these impairments the Group’s net assets will be in excess of $1.15 billion.
The total charge of $640 million will be included as a significant item in the year end results and excluded from the Group’s underlying earnings. The impairment is primarily non-cash in nature and will not impact the Group’s debt facilities, compliance with banking covenants or trading terms.
In response to the difficult trading environment, Metcash is taking a number of steps to strengthen its balance sheet. On 14 May 2015 Metcash announced it was investigating a potential IPO of its automotive business and that the proceeds from this sale would be invested in the Group’s balance sheet and businesses.
Metcash today also announced the Board will not be declaring a final dividend for FY15 and that it intends to suspend dividend payments for FY16″.
The company confirmed that underlying EBIT for FY15 are expected to be between $315-$330 million, unchanged from its previous guidance.
Markets have reacted savagely to the news with shares in the company currently off another 17% today to $1.145.