Metcash swings back to profit, plans to restart dividends

Metcash shares have slumped 12pc despite the supermarket group flagging its intention to restart dividend payments.

Metcash has swung back to profit, with the supermarket group saying its improved balance sheet will allow it to recommence shareholder payouts “with effect from the fiscal year 2017 final dividend”.

But the firm’s shares dived as it revealed its underlying earnings lift was largely driven by reduced interest rate payments, with its key food and grocery earnings plunging by 17 per cent.

In the 12 months to April 30, Metcash recorded a $216.5 million net profit after last year posting a $384.2m loss.

Underlying profit lifted 2.7 per cent to $178.3m, while revenue was up 1.3 per cent to $13.5bn. Net debt reduced by $392.3m to $275.5m.

Analysts surveyed by Bloomberg had expected underlying profit to be largely flat.

But Metcash conceded that the profit lift was largely reflective of “lower finance costs”, with earnings before interest and tax down 7.4 per cent to $275.4m amid price cuts to the group’s supermarkets division. Net finance costs for the year halved to $27m.

The 17 per cent drop in supermarkets earnings reflected “the cost of price investment now being cycled in the earnings base,” the company said.

At 12.10pm (AEST), Metcash shares were down 12.7 per cent to $1.85 against a benchmark lift of 1 per cent. They had earlier fallen as much as 14 per cent.

But the company said its financial positions was now “solid” with its gearing nearly halved to 16.8 per cent amid “tight cash management” and the $242.1m sale of its automotive business.

“The strong focus on capital and cash management has delivered a significant reduction in debt which positions the group well to deliver its Transformation Initiatives as well as invest in growth opportunities,” Metcash chief executive Ian Morrice said.

“This financial strength also underpins the group’s intention to recommence half-yearly dividend payments with effect from the financial year 2017 final dividend, subject to capital requirements.”

Mr Morrice said key supermarket initiatives were driving returns while the liquor and hardware segments “continue to build momentum”. The company said it expected “further consolidation and positive momentum” in the liquor and hardware spaces.

However, the company said trading conditions in its markets remained “highly competitive”.

“The Food and Grocery business continues to face headwinds from competition, deflation and a rising cost base,” it said.

Metcash’s result last year was weighed down by its decision to reduce the carrying value of its goodwill and other assets by $640m. The company recognised an impairment of $507m in relation to intangible assets, including goodwill of $442m and took a further charge of $133m in relation to other assets and obligations, predominantly in its food and grocery sector.