Metcash cops heavy new $237.4m impairment

Struggling grocery wholesaler Metcash is again taking a big axe to the value of its core food business.

Metcash is taking another hefty impairment charge on the value of its core food business. Picture: George Doyle

Struggling grocery wholesaler Metcash will again take an axe to the value of its core food business, taking total impairments booked against the embattled division in the last year to more than $500 million as the company continued to encounter tough trading conditions in the supermarket sector.

Just last week Metcash warned it was losing 7-Eleven as a customer in news which spooked investors.

Metcash announced on Tuesday that its financial statements for the half-year ended 31 October 2019 would recognise a $237.4 million (post tax) impairment to goodwill and other assets in the “food” division.

READ MORE: Housing price rise to open consumers’ wallets | Rosy outlook ahead for select retailers

The massive impairment is likely to drive the company into loss for the period. It was only in June 2018 that Metcash slashed its supermarket and food division goodwill by $352 million in the wake of difficult trading conditions and the loss of a key customer in South Australia.

The latest impairment follows the company’s review of the carrying value of its assets, undertaken as part of its process for preparation of the first-half financial statements for 2020.

Metcash said the review had taken into account the information contained in Metcash’s ASX release last week concerning 7-Eleven’s advice that it would not be renewing the current supply agreement with Metcash following its conclusion on August 12, 2020.

That development is expected to result in the loss of around $15 million in earnings before interest and tax in the food business, after adjusting for mitigating costs savings.

In accordance with Australian Accounting Standards, the company said, the assessment of the carrying value of goodwill cannot take into account any future mitigating cost savings.

“The impairment is non-cash in nature, has no impact on the company’s debt facilities or compliance with banking covenants,” Metcash said.

For the first half of 2019 Metcash posted a profit of $95.8 million.