Metcash scraps dividend plans, flags $640m hit to profit

Shares in Metcash have been hammered after the grocery company flagged a suspended dividend and $640m hit to profits.

Food and grocery retailer and wholesaler Metcash will not declare a final dividend at its full-year results and has suspended its dividend payments for fiscal 2016 as it continues to struggle to firm up its balance sheet.

Metcash (MTS) said today it still expected its underlying full-year profit to be within the previous guidance range of $315 million to $330m.

However, it will be hit by a $640m charge in its full-year results, which will be included as a significant item and excluded from the group’s underlying earnings.

Shares in Metcash took a hammering following the announcement with the stock plunging 26c, 18 per cent, to $1.14 in opening trading on the Australian Securities Exchange. The stock failed to regain ground through the day and was still trading around $1.14 at 3pm.

The latest share smashing comes amid a horror year for the company behind IGA grocers, with the stock losing 39.5 per cent in the year to date and 60.4 per cent in the last 12 months — its lowest point since late 2001.

The impairment is primarily non-cash in nature and will not impact Metcash’s compliance with its debt facilities or its trading terms.

The charge relates to Metcash’s decision to reduce the carrying value of its goodwill and other assets by $640 million. The company will recognise an impairment of $507m in relation to intangible assets, including goodwill of $442m and other intangible assets of $65m. It will take a further charge of $133m in relation to other assets and obligations, predominantly in its food and grocery sector.

After the impairments, Metcash said its net assets will be in excess of $1.15 billion.

Metcash, which owns the IGA chain of Australian supermarkets, is facing fierce competition on the price of everything from bread to pasta from discounters such as Aldi and larger rivals like Woolworths that want a bigger share of the grocery market.

The wholesaler has been struggling to adjust to the difficult trading environment over recent months.

In May it revealed it had appointed Citigroup to advise on a possible IPO of its automotive division, which generated revenue in the year through April of $250m.

Proceeds of any sale — Credit Suisse analysts say a divestment could potentially raising up to $460m through an initial public offering and substantially reduce the company’s debt profile — would be invested in the group’s balance sheet, the same location savings from suspending dividend payments will flow to.

Metcash chief executive Ian Morrice said the group was making progress with its strategic priorities.

“We have completed the first year of our transformation plan and these capital management initiatives will provide a foundation from which the group will continue to deliver the priorities in our strategic plan,” he said.

 

Business Spectator