Metcash Limited (ASX: MTS) reported a 12.7% decrease in underlying EBIT in the first half of its FY16 results and initiated a 'working smarter program' to improve its productivity.
The wholesale distributor reported a 1.4% increase in sales revenue compared to pcp. The underlying EBIT declined 12.7% due to a drop in its Food and Grocery earnings. The company also noted that its Liquor and Hardware section experienced improvements in profits.
According to the Group CEO, Ian Morrice: “We continue to invest in the group’s turnaround. While we are still experiencing highly competitive trading conditions and price deflation, we are seeing evidence the Transformation Plan is producing positive results across the group. Importantly, we have seen a continuing improvement in the sales a continuing improvement in the sales trend for the Food and Grocery Pillar.”
The underlying EBIT of the group’s Food and Grocery section declined 22.9% despite a 0.7% rise in sales. This was due to an increase in price investment and a softer EBIT performance in its Convenience section followed by declined sales in Campbell’s reseller business and lower margins from major customer contracts.
The group reported a 4% rise in EBIT from its Liquor due to its strong operational performance, store conversions and acquisitions. The EBIT from Hardware section increased 22.1% as the group managed its supply chain costs and received higher contributions from joint ventures.
The group also announced that the proceeds from the sale of its automotive pillar enabled it to reduce net debt to $435.3 million from $667.8 million during the previous year. Metcash confirms that it does not intend to pay a dividend in FY16.
Metcash announced the ‘working smarter program’ which will form the next stage of the group’s Transformation Plan. This program is aimed to improve productivity across the business operations by simplifying the way of doing business from supply to customer. This program is not set to deliver a significant benefit in FY16 but is expected to provide gross pre-tax savings run rate of approximately $100 million by FY19.
Metcash also provided an outlook for the year ahead as it mentions that it will continue to face highly competitive trading conditions in its overall business, particularly the Food and Grocery section. The group remains confident that the initiatives being undertaken will strengthen the organisation, enabling it to serve the retailers, consumers and suppliers, while delivering value to its shareholders.
MTS share last traded at $1.32 as at 10:10 AM (AEDT) and is down 29% for the year.
Author: Imran Valibhoy
Nov 30, 2015
Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.