Australia’s third major retailer Metcash slipped out a record full-year result and dividend, as well as a share buyback on Monday in the middle of the latest Covid lockdown furore, which saw the company’s shares up by more than 3% at one stage.
The record result came despite the loss of two major contracts in the past couple of years – losses that were more than made up by the pandemic-driven surge in sales at Metcash’s IGA supermarkets, its two hardware chains and the various liquor chains it wholesales to.
Metcash told the market that overall sales rose 10.1% to more than $16 billion for the first time in the year to the end of April.
The $16.4 billion in was slightly above market forecasts and produced a 27.1% jump in after tax underlying profit to $252.7 million.
Underlying earnings before interest and tax rose 20% to $401.4 million while the statutory group underlying profit was $239 million, up from the $58 million loss in 2019-20.
The solid result saw Metcash lift both its dividend and its payout ratio, with the company set to pay shareholders 17.5 cents a share for the full year, a rise as 40% as the payout ratio limit was lifted to 70% of net profit from 60% (That was announced in March).
The company is also undertaking an off-market share buyback of up to $175 million,
Metcash shares jumped 3.6% to $3.79 but were closed at $3.69, a gain of 0.8% on the day. Much of the gain was due to the Sydney lockdown and tighter rules in WA, the NT and Queensland and not the solid result and capital management moves.
In the six months to October 31 last year, Metcash saw a 12.3% jump in revenues to $8.1 billion (including charge-through sales), underlying earnings after tax were up 43% to $129 million and the statutory after-tax result was $125 million, up from a loss of $151 million.
Sales at the company’s supermarket division grew a solid 11% to $9.4 billion when excluding the impact of two lost contracts to Drakes and 7-Eleven, a figure which rose to 15.6% when compared against the pandemic-free 2019 financial year.
Metcash’s hardware division, which supplies Home Timber & Hardware and Mitre 10, also saw its revenue soar 24.7% to $2.6 billion thanks to significant growth in DIY sales in the renovations area and the home building boom – both of which are continuing.
Sales through its liquor division (including charge-through) increased 19.2% to $4.4 billion, a $700 million rise from 2019-20’s $3.7 billion ” reflecting continued strong demand in the retail network, partly offset by the adverse impact of COVID trading restrictions on ‘on-premise’ customers,” Metcash told the ASX.
CEO Jeff Adams said he hadn’t seen any obvious reduction in local shopping habits despite major supermarkets Coles and Woolworths saying buying patterns were beginning to normalise after being turned on their head by the pandemic.
He said the Group Metcash “has continued to benefit from a shift in consumer behaviour in the first eight weeks of the new financial year with Supermarkets, Liquor and Hardware up 14.2%, 26.0% and 29.1% respectively, compared with the same period in FY20 which excludes the positive impact of COVID-related trading restrictions.”
“Metcash’s strong Group performance and financial position, together with confidence over future operating cashflows, will result in $354m being returned to shareholders. This includes a 40% increase in FY21 dividends to 17.5c per share and the announcement today of an Off-Market Buy-Back of up to ~$175m.
“Metcash continues to be well placed to invest in its growth plans and remains focused on championing the success of its independent retailers through further improving their competitiveness,” Mr Adams said.
Metcash meanwhile said on Monday that it increased its ownership in Total Tools Holdings Pty Limited (TTH or Total Tools) from 70% to 85% for an acquisition cost of $59.4 million.
Metcash said Total Tools has a history of strong performance, and this has continued since Metcash acquired its 70% stake in September last year with the business contributing EBIT earnings before interest and tax (EBIT) of $24 million for the eight months ended April 30 this year.