Metcash delivers sixth year of liquor growth

09 December, 2019 by Andy Young

The Metcash Liquor business has delivered a sixth consecutive year of earnings growth despite overall profits for the first half of FY2020 being dented by “a lower contribution in the Food pillar”.

Group underlying EBIT declined 5.3 per cent to $149.7m while underlying profit after tax declined by 4.6 per cent to $95.7m. The group said that the EBITs fall largely reflected “a lower contribution in the Food pillar from the resolution of onerous lease obligations and ceasing to supply Drakes Supermarkets in South Australia with effect from 30 September 2019”.

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Group CEO, Jeff Adams said: “The first half included some significant achievements for the Group, particularly in our Food pillar.

“I am pleased to report that our Supermarkets business delivered wholesale sales growth, including on an ex tobacco basis after adjusting for the impact of ceasing to supply Drakes. This is the first reported increase in wholesale sales ex tobacco since FY12.

“Retailer confidence is improving and this is driving further investment to improve the quality and competitiveness of the IGA store network.”

He added: “Our Liquor business continued to perform well, delivering earnings growth for the sixth consecutive year. Our initiatives focused on the ‘on-premise’ channel and the private and exclusive labels category are delivering good results. These initiatives, together with expanding our digital capability are key priorities under the MFuture program.”

In detailing the performance of the Liquor business, Metcash said that total Liquor sales (including charge-through sales) increased 1.7 per cent to $1.78bn. The group said this reflected a “continuation of the ‘premiumisation trend’ to higher value, but lower consumption”.

Wholesale sales to contract customers and non-bannered stores for the Liquor business increased due to the addition of new customers and growth in on-premise sales, and warehouse sales to the IBA bannered network increased 1.7 per cent on a like-for-like basis.

Liquor EBIT increased $0.5m to $29.6m, with the group saying “the contribution from increased sales more than offset an increase in costs”. The business EBIT margin was maintained at 1.7 per cent.

In its outlook for the remainder of the financial year, Metcash said: “In Liquor, market growth over the remainder of FY20 is expected to continue to be influenced by the ‘premiumisation’ trend to higher quality but lower consumption. The business is continuing to progress its growth initiatives under the MFuture program with opportunities in private and exclusive label, the ‘onpremise’ market and digital being prioritised under the new Liquor CEO.”

Adams added: “It was disappointing to receive advice from 7-Eleven last month that they will not be renewing our current supply agreement which concludes in August next year. The cost of more onerous supply requirements going forward unfortunately made the contract uneconomic for us. “Our financial position remains strong and this provides us with flexibility to fund our current initiatives, as well as consider future growth opportunities that create value for our shareholders.”

The Board has determined to pay an interim dividend of 6.0 cents per share, fully franked. The record date for the interim dividend is 18 December 2019 and payment will be made on 23 January 2020.