Metcash Trims Dividend Despite Sales Lift




Wholesale grocery, liquor, and hardware distributor Metcash became the first major listed Australian company to report results with a significant influence from the coronavirus and associated lockdowns - and the evidence is that it has done OK.

Metcash had already pointed out a strong sales performance in February, March, and April as panicked consumers bought a wide range of grocery and some liquor items.

And the company says the company has seen strong sales growth continue in the first seven weeks of the new 2020-21 financial year.

Despite that, the company has trimmed final and full-year dividend - a sign of some conservative thinking with the impact of the pandemic on retail sales still uncertain.

The final was cut to 6.5 cents a share from 7 cents a share. That was after the interim was cut half a cent to 6 cents a share.

Metcash, which supplies and supports the IGA supermarket chain across the country reported a 2.9% rise in sales revenue for the 12 months to April 30 to $13.03 billion, led by growth in its food and liquor segments.

The company said it benefited from the extraordinary demand levels for grocery/food items in March and April amid panic buying during coronavirus-related restrictions. That helped boost overall sales from the sluggish 0.2% growth up to the start of the pandemic in February.

Metcash said sales had continued to grow in the first seven weeks of FY21 with food sales are up 9.3%, and supermarkets wholesale sales excluding tobacco up 16.7%.

“Extraordinary demand levels in the food pillar in March and April resulted in strong sales in FY20,” CEO Jeff Adams said in yesterday’s statement.

"Importantly, the underlying sales trajectory of supermarkets wholesale sales continued to strengthen in 2H20, with sales growth delivered for the first time since FY12."

He said the success of strategic initiatives together with a shift to more local neighbourhood shopping during COVID-19 had seen market share gains for the IGA network.

Metcash shares jumped on the news, despite the company reporting a statutory full-year loss of $56.8 million after taking a non-cash impairment charge in the first half.

Underlying profit after tax was $209.7 million.

The sales growth comes despite the loss of a big supply contract in South Australia a year ago and the start of the run down in sales to 7-Eleven after Metcash lost that supply contract, worth an estimated $800 million in sales annually, during the first half.

The company had announced a $237.4 million non-cash impairment against goodwill and other assets as a result to the 7-Eleven loss.

For the full year, its supermarket food sales rose 3.8% to $7.5 billion.

Liquor sales edged up 0.3% to $3.68 billion, despite being adversely impacted by COVID-19 restrictions in March and April due to the closure of customers’ ‘on-premise’ businesses in Australia and especially New Zealand.

Hardware sales fell 1.3% to $2.08 billion reflecting the impact of the slowdown in construction activity on trade sales and the loss of a large customer in the first half.

The company said there was a significant improvement in the second half hardware sales as the COVID-19 lockdowns encouraged people to start DIY projects.

Metcash also announced yesterday that it will pay $57 million to buy national tools retailer, Total Tools.

The company made it clear that the deal was the first of a number as it looks to replace sales that will go when the 7-Eleven contract ends and the loss of a big supply deal in South Australia.

Metcash’s result got a tick from investors wt the shares up 1% to 2.86. They were as high as $2.95 at one stage.