Australian retail distributor Metcash has booked a drop in full-year profit.
For the 12 months to the end of April, earnings dropped to A$90m (US$90.4m) from A$241.4m in the prior-year. Metcash blamed the decline on restructuring costs from the acquisition of local retailer Franklins and a A$27.2m loss from discontinued operations.
EBITA, however, rose by 3% to A$12.25bn and sales rose "slightly" it said, to reach A$12.4bn.
The Group recorded an underlying profit of $262.5 million for the 2012 financial year, up 2.5% on the 2011 result. The Group generated $12.3 billion of wholesale sales revenue which was down marginally against the prior year which included a 53rd
week. The trading environment during 2012 was difficult and impacted participants across the Australian retail sector. Metcash completed a comprehensive review of its strategy in order to combat the effects of on-going deflation, rising utility costs, a highly value driven consumer and a persistent marketing war between the two large grocery chains.
By maintaining market share and driving costs out of the business, Metcash increased its underlying EPS by 2.1% to 34.1 cents. As a result, the Board was pleased to announce a final fully franked dividend of 16.5 cents per share (total 2012 dividends 28.0 cents), which was up 3.7% on the prior year.
However, the tough trading conditions and the strategic review initiative have necessitated the recognition of significant item expenses totalling $176.7 million ($135.6 million after tax). This included an impairment charge of $105.7 million in respect of Metcash's investment in the Cornetts and Walters Queensland joint venture businesses. Metcash's strategic review, which concluded in April 2012, is expected to position the Group for solid returns into the future. The results include a significant item charge of $42.5 million from this group restructure, arising mainly from costs associated with the closure or sale of 15 Campbells branches and redundancy costs associated with the formation of the new Food & Grocery division. Metcash completed the acquisition of the Franklins group in September 2011. This acquisition facilitated the rationalisation of a number of warehouses in NSW, which are being consolidated into the new facility at Huntingwood. The costs of acquisition and the related distribution centre closure costs have resulted in $28.5 million in significant items expenses. Further details of these significant items are provided in Note 4(vi) to the financial statements.
The trading result for the Franklins retail stores has been classified within discontinued operations in these financial statements (Note 31). The Franklins corporate stores recorded a retail loss of $27.2 million after tax for the period. Metcash intends to re-badge the Franklins stores to IGA and dispose of them to independent retailers. It is anticipated that the superior retailing skills of independent operators together with their focussed and localised differentiated offers will see these stores quickly turned around.
The reported net profit for the period attributable to equity holders was $90.0 million (2011: $241.4m), with the reduction due to the recognition of the abovementioned significant items and discontinued operations. Despite this, the Group generated operating cashflows of $284.3 million during 2012, up considerably over the prior year. These cashflows were partly invested in the Franklins acquisition and also applied towards providing a consistently high and fully franked dividend return to our shareholders.
