Metcash flags profit hit

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Updated

Shares in grocery retailer, Metcash, have slumped to a 14 year low after the IGA supermarkets brand owner flagged a $640 million profit hit and said it would stop paying dividends.

Metcash has announced $507 million in asset writedowns, mostly related to its goodwill, and another $133 million charge linked primarily to its food and grocery division.

It also announced it would not pay a final dividend for the 2014/15 year and said it plans to suspend its dividend next year as well.

But the company reaffirmed its full year guidance for underlying earnings of between $315 million and $330 million.

Metcash shares sold off heavily in early trade and were down 21 cents, or 15 per cent, to $1.17 as of 1010 AEST, their lowest level since 2001.

The company is in the midst of a $480 million overhaul of its operations as it looks to improve the quality of its stores to better compete with the major supermarket brands.

Metcash CEO, Ian Morrice, said the latest writedowns and the suspension of its dividend would help bolster than plan.

“While we are making progress with the group’s strategic priorities, the food and grocery pillar is operating in an increasingly competitive environment,” he said.

“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.”

The expansion of German retailer, Aldi, in Australia is making life increasingly difficult for the major supermarket chains and IGA is looking more vulnerable than its larger rivals, Coles and Woolworths.

Metcash’s sales grew just one per cent during the first half of 2015, compared to nearly five per cent for the same period a year earlier, while its underlying profit fell nine per cent.

The company is in the midst of a $480 million overhaul of its operations as it looks to improve the quality of its stores to better compete with its rivals.

It has also announced that it is looking at floating its automotive businesses, which includes the Autobarn, Autopro and Midas brands, in an effort to shore up its balance sheet.

AAP e

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