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Hardware Leads Metcash Fightback

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The three and a bit year of turnaround at Metcash under just retired CEO, Ian Morrice, has paid on in spades in a sharp improvement in first half profit and the first dividend for more than three years.

Metcash’s interim net profit was up 24% to $92.9 million from the year-earlier $74.9 million as a stronger contribution from the merger of Mitre 10 and Home Timber & Hardware offset subdued food and liquor wholesaling earnings growth.

Metcash directors yesterday rewarded shareholders for their patience by declaring its first interim dividend since 2014, paying out a fully franked 6 cents a share, after cutting net debt by $94 million and ending the period with net cash of $14 million.

Metcash shares leapt 9% to end at $3.01. Metcash shares are up more than 32% year date.

It was a strong result for outgoing Metcash chief executive Ian Morrice, who hands the reins to Jeff Adams this week after five years at the helm.

Earnings from the food and grocery business, Metcash’s biggest, rose 5.8% to $89.4 million in the six months ended October 31. The convenience business returned to profit after losing $4 million in the first half of 2015-16 but supermarket profits were flat despite cost savings.

Food and grocery sales fell 1.4% to $4.3 billion as independent IGA retailers lost market share to a resurgent Woolworths and Aldi.

Earnings from hardware surged 117% to $27.1 million as Metcash booked a full six months of sales and synergy benefits from Home Timber & Hardware, which was bought from

Woolworths on October 2 2016 for $180 million. Sales jumped 83% to $1.06 billion. With Mitre 10, Mercash is now a firm Number 2 to Bunnings.

In liquor, earnings were impacted by a rise in bad debts in Western Australia and the costs of preparing for the launch of the container deposit scheme in NSW on December 1. EBIT rose just 1.8% to $27.6 million despite a 5.1% rise in sales to $1.64 billion.

Total sales revenue rose 7.6% to $7.1 billion, from $6.6 billion in 2015-16 when it received only one month of sales from Home Timber & Hardware.

Group CEO, Ian Morrice said in yesterday’s statement: “The first half results were very pleasing despite the continuation of some of the most challenging market conditions in our history. It was good to see earnings growth across all our Pillars, as well as strong operating cashflows.

“Both Liquor and Hardware continued to perform well, and our Hardware team is continuing to do a great job on the integration of HTH. Synergy benefits from the acquisition are being delivered in line with our expectations, and there has been a turnaround in HTH’s performance in a relatively short period of time.

“We are now half way through our three year Working Smarter program, and the initiative is delivering significant benefits, particularly in our Supermarkets business. The savings achieved have been a key factor in Supermarkets maintaining its earnings, despite the significant headwinds that include a continuing high level of deflation.

“As announced at the time of our FY17 results in June, I am stepping down as Group CEO and will shortly be handing over to Jeff Adams. It has been an honour to lead Metcash since 2013, and I wish the company every success in the future.”

Jeff Adams said in yesterday’s statement: “I am pleased with the first half performance and the excellent work done to further strengthen Metcash’s financial position. “The company has a good portfolio of businesses, a very strong and capable management team, and the strength of its financial position provides significant strategic flexibility for the future.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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