Monday, August 8, 2022

Metcash Limited announces FY22 full year results

Metcash Limited released its financial results for the full year ended 30 April 2022, recording continued growth on exceptional FY21 results despite significant external challenges.

Metcash Limited Group CEO Doug Jones said: “I am pleased to be presenting Metcash’s FY22 results, my first as Group CEO. The results are outstanding, another record year, and represent continued progress on the exceptional performance in FY21.

“At the outset I would like to thank Jeff Adams for his stewardship of the Company and his assistance in my transition into the Group CEO role earlier this year.

“Record sales growth led to a significant increase in underlying earnings and returns to shareholders,” he said.

“The FY22 results were underpinned by the success of our MFuture initiatives designed to further improve the competitiveness of our retail network, continuation of the local neighbourhood shopping trend and the success of recent strategic acquisitions,” Mr Jones said.

“The number of external challenges increased in the second half and our supply chain and retail operations, both our own and those of our retail partners, exhibited significant resilience and flexibility. There were more lockdowns due to the Omicron COVID variant, major supply chain challenges, flooding in South Australia, New South Wales and Queensland which resulted in supply route disruptions, and towards the end of the financial year challenges related to Russia’s invasion of Ukraine and lockdowns in China.

“A strategic investment in inventory, the flexibility of our operations and the outstanding efforts of our people helped our retailers to keep their shelves stocked and continue serving their local communities through these challenges. A testament to our people and independent retailers is that our focus on keeping shelves stocked did not materially hinder the continued successful execution of our MFuture initiatives,” he said.

“Our retail networks in Food, Hardware and Liquor all continued to perform well, further strengthening the health of our independent retail networks. On a two-year basis, like-for-like (LfL) sales increased ~15% in the IGA retail network, ~28% across Hardware’s IHG and Total Tools retail networks and ~24% in the IBA Liquor network. Importantly, retailers are increasingly reinvesting in their stores, further improving the quality of their network
primarily through the various store upgrade programs we support,” Mr Jones said.

“We also further strengthened relationships with our independent retailers and were pleased to recently announce long term agreements to continue supplying Foodworks stores and Drakes Supermarkets in Queensland.

“Good progress has been made on a wide range of digital initiatives, including progressing the rollout of new eCommerce platforms in the Food and Liquor networks. In Food, we now have ~190 stores using our IGA Shop Online platform, and sales through our leading platforms in IHG and Total Tools now represent ~6% of total network sales in Hardware,” he said.

“Project Horizon, our technology transformation program aimed at resetting our core technology and making it easier to do business with us, has continued to progress with transition to a new core financial system successfully completed in the year,” Mr Jones said.

“Our range of ESG projects has expanded substantially reflecting the inclusion of sustainability as a core component of Metcash’s vision. Pleasingly, this has been reflected in a further improvement in our ESG credentials with our DJSI ranking improving to 21 and the 69th percentile.

“The Group’s significant lift in earnings and strong financial position led to a ~23% increase in total dividends for FY22, representing a 72% increase on a two-year basis.

“Importantly, sales momentum has continued into FY23 with Group sales up ~9% in the first seven weeks of the year and growth in all pillars, partly buoyed by the impact of inflation,” he said.

“While remaining focused on managing the supply change challenges, we are also helping shoppers manage the impact of inflation by providing better value options through a wider range of products at competitive prices.

“Going forward, our robust business model is supporting our pillars to manage well through the ongoing challenges, and we remain well positioned with a strong balance sheet and financial flexibility to continue progressing our MFuture plans,” Mr Jones said.

Results overview

Group reported revenue, which excludes charge-through sales, increased 5.9% to $15.2bn (FY21: $14.3bn). Including charge-through sales, Group revenue increased 6.4% to $17.4bn (FY21: $16.4bn), with significant underlying growth in each pillar, building on the exceptional sales performance in the prior corresponding year.

Group underlying EBIT increased 17.7% to $472.3m reflecting the robust sales performance and the success of recent strategic acquisitions, partly offset by increased costs related to Covid and supply chain challenges. On a two-year basis, Group underlying EBIT increased 41%.

The food pillar continued to perform well delivering EBIT growth of 4.1%, or ~17% after adjusting for the adverse impact of 7-Eleven, a decline in the contribution from the resolution of onerous lease obligations and there being no tobacco excise increase in FY22.

In hardware, EBIT increased a substantial 40.7% reflecting earnings growth in both IHG and Total Tools, buoyed by elevated residential construction activity and the increased contribution from majority-owned company and joint venture stores in IHG and Total Tools.

In liquor, EBIT increased 9.8% reflecting the continued robust demand in the retail network and a recovery in on-premise sales following the easing of Covid-related trading restrictions.

Review of Trading Results

Food

Total food sales (including charge-through) increased 1.4% to $9.5bn, or 2% on a normalised basis (+13.4% 2yr normalised). Excluding tobacco, total Food sales (including charge-through) increased 5.4% or 3.8% on a normalised basis (+11.9% two-year normalised).

Supermarkets sales increased 3.9% or 1.9% on a normalised basis (+13.8% two-year normalised). Like for Like (LfL) sales in the IGA network increased 2.9% (+14.6% two-year basis) with continued support from shoppers rediscovering the convenience of local neighbourhood shopping and the improved competitiveness of the network.

“This has been underpinned by the success of our MFuture initiatives including the Network of the Future and Diamond Store Accelerator programs,” the Company said.

The strongest sales growth (ex tobacco) was in states less impacted by Covid-related restrictions (WA and Queensland).

“The business went to extraordinary lengths to keep its retailers’ shelves adequately stocked through significant supply chain and operational disruptions, as well as elevated and unpredictable demand. Initiatives such as a strategic investment in inventory, operating seven-day shift patterns in large distribution centres, re-routing supply points around logistics blockages, re-deploying staff to support our logistics operations and working closely with our suppliers, government and industry all helped support the strong performance of our IGA network,” the Company said.

Sales momentum in supermarkets accelerated in the fourth quarter of FY22 increasing 13.8% or 5.8% normalised (+9.6% ex tobacco normalised). LfL sales in the IGA network increased 6.3% (normalised) in the same period, reflecting market share gains and the impact of inflation.

Wholesale price inflation accelerated in the second half with price increases being received from ~60% of the supplier base. Wholesale price inflation for the year was 0.5% (1H22: deflation of 1.0%, 2H22 inflation of 1.9%).

Food EBIT increased $7.9m or 4.1% to $200.3m. The improvement was ~$29m or ~17% after adjusting for the adverse impact of 7-Eleven, a decline in the contribution from the resolution of onerous lease obligations and there being no tobacco excise increase in FY22. The higher earnings reflects the strong trading performance, partly offset by additional costs related to CovidSafe work practices and Covid-related labour costs related to absenteeism and penalty rates associated with extended operating hours at distribution centres.

The Food EBIT margin improved to 2.1% (FY21: 2.0%) despite these additional costs.

Liquor

Total liquor sales (including charge-through) increased 8.7% or 6.6% on a normalised basis to $4.8bn (2yr normalised4 +27.1%) with a continuation of strong demand in the retail network and a recovery in on-premise sales.

Sales growth in the retail network was in both the IBA banner group and contract customers, supported by continuation of the shift in preference for local neighbourhood shopping and less overseas travel and duty free shopping.

Wholesale sales to the IBA banner group increased 4.4% (+28.1% 2yr basis) with all brands performing well, particularly the Bottle-O, Cellarbrations and IGA Liquor. RTDs, spirits and wine continued to be the strongest growth categories. Retail LfL sales in the IBA banner group increased 2.5% (+24.0% two-year basis).

Sales to on-premise customers continued to recover with the easing of Covid-related restrictions, increasing 30% compared with the prior corresponding year.

Sales growth across states was strongest in WA, which has been least impacted by Covid-related restrictions.

Liquor EBIT increased $8.7m or 9.8% to $97.4m reflecting the contribution from the increase in sales volumes, which more than offset an increased weighting of the on-premise channel in the sales mix, as well as higher costs associated with the impact of CovidSafe work practices, Covid-related costs associated with absenteeism, and higher freight costs related to route disruptions and increased fuel costs. The EBIT margin for Liquor was in line with the prior comparative period at 2% despite the additional costs.

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