Metcash Limited has released its FY23 Half Year Results, which delivered strong growth in sales and profits in the face of higher inflation and cycling the impact of extensive lockdowns.
Metcash Group CEO Doug Jones said: “It has been another pleasing half for Metcash with strong sales and earnings growth in the face of higher inflation and while cycling the impact of extensive lockdowns in 1H22.
“Importantly, the business continued to build on its record performances post the onset of Covid, achieving exceptional growth over the past three years in all pillars.
“The increased preference for local neighbourhood shopping continues to be seen in our strong sales performance, with shoppers recognising and enjoying the increased competitiveness, differentiated offer and relevance of our network of independent stores. Feedback from our retailers is that many shoppers have now changed their shopping habits to include local grocery, liquor and hardware stores,” Mr Jones said.
“There was some improvement to the extensive supply chain challenges experienced in FY22, and our operations again exhibited resilience and flexibility which, together with our strategic investment in inventory, ensured our networks remained well stocked. All pillars continued to perform well, underpinned by robust demand and sales volumes. In the liquor pillar, growth accelerated, which was a standout for the half.
“Keeping on-shelf prices highly competitive supported strong sales volumes in all pillars. As outlined at our recent Investor Day, we are prioritising volume growth, our core value driver, to keep our retailers competitive, particularly whilst facing their own cost pressures.
“Our independent retail networks performed well. Overall network health continued to strengthen, and retailers are operating with a high level of confidence and reinvesting to further improve the quality of their stores and offer,” he said.
“The success of our investments in Total Tools and IHG, and significant growth in the underlying performance of the Hardware pillar, has led to a rebalancing of the Group’s earnings profile with hardware now the largest contributor.
“We now have ~160 company-owned or joint venture stores in our hardware network that together are delivering significant sales growth.
“The Group’s increased earnings and strong financial position led to the Board declaring an interim dividend for FY23 of 11.5 cents per share, an increase of 9.5% over last year, or ~92% on a three-year basis,” Mr Jones said.
“Sales momentum has continued early in the second half with Group sales up 6.2% in the first four weeks.
“It was great to see the expansion and acceleration of our ESG program recognised in the recently released 2022 Dow Jones Sustainability Index assessment. Metcash now ranks in the 85th percentile of the international fast moving goods group of companies, up from the 69th percentile last year. While we have made good progress, further improvement remains a key focus for the Company,” he said.
“Project Horizon, aimed at repositioning Metcash to be a modern, technology-led wholesaler, continued to progress towards its target of completing Stage 1 by the end of 2023. We continue to focus our core capabilities and best talent in this area with our immediate priority on accessing benefits for the food and liquor pillars faster.
“Looking forward, the business remains well placed with good growth opportunities, a strong financial position and strategic initiatives that are delivering significant benefits. We are also accelerating targeted growth and value creation initiatives in areas such as loyalty, digital and e-commerce, data, network optimisation and development, as well as addressing legacy technology risks through Project Horizon”, Mr Jones said.
Results overview
Group reported revenue, which excludes charge-through sales, increased 8.2% to $7.7bn (1H22: $7.2bn).
“Including charge-through sales, Group revenue increased 7.8% to $8.9bn (1H22: $8.2bn) reflecting growth in all pillars despite cycling the impact of extensive lockdowns. This was underpinned by continued strong demand, inflation and acquisitions. On a three-year basis, which provides a comparison with pre-Covid trading, Group revenue including charge-through sales increased 31.7% on a normalised basis,” the Company said.
Group underlying EBIT increased 10.3% to $255.1m, reflecting the robust sales performance and success of recent strategic acquisitions, partly offset by increased costs (fuel, freight and labour). On a three-year basis, Group underlying EBIT increased 63.8%.
“The food pillar continued to perform well, delivering EBIT growth of 3.2% despite cycling the impact of extensive lockdowns in NSW and Victoria. The lockdowns led to demand for food being elevated in the prior corresponding half. On a three-year basis, Food EBIT is 11.1% higher,” the Company said.
“In hardware, EBIT increased 17.9% with growth in both IHG and Total Tools. Underlying demand in the Trade and DIY segments remained robust, and there was an increase in the contribution from majority-owned company and joint venture stores in IHG and Total Tools. Three-year EBIT growth in this pillar is 199.7%.
“In liquor, EBIT increased 11.3% reflecting the contribution from strong sales to retail customers, and a recovery in sales to on-premise customers post the lockdowns and easing of other Covid-related restrictions. The three-year EBIT growth in liquor was 60.6%, with very little contribution from acquisitions,” the Company said.
Group underlying profit after tax increased 9.1% to $159.9m, and statutory profit after tax was $125.7m, an increase of ~183% over three years. Statutory profit after tax includes $34.2m of after tax significant items including put option valuation adjustments of $21.3m and Project Horizon implementation costs of $12.8m.
Underlying earnings per share increased 13.7% to 16.6 cents, an increase on a three-year basis of 66.0% or 177.8% on a reported basis.
“Group operating cashflow was $89.6m (1H22: $212.1m) with the cash realisation ratio 36.5% (1H22: 91.6%), reflecting the increased working capital associated with higher level of Group sales including inflation; the increased weighting of Hardware in the Group sales portfolio which has higher outstanding days and inventory in stores; and the impact of compliance with shorter payment terms for small suppliers.
“The Group ended the financial year with net debt of $364.4m (FY22 net debt $189.0m) reflecting the impact of an increase in working capital, dividends paid, and capital expenditure. The level of net debt is below the Company’s target debt leverage ratio.
The increase in Group earnings and strong financial position led to a 9.5% increase in the interim dividend for FY23 to 11.5 cents per share, fully franked. This represents a ~92% increase on a three-year basis,” the Company said.
Food
Total food sales (including charge-through) increased 3.1% to $4.7bn (+20.5% 3yr normalised). Excluding tobacco, total food sales (including charge-through) increased 6.5% (+23.7% 3yr normalised).
“Supermarkets sales increased 2.0% (+20.4% 3yr normalised2) or +5.6% ex tobacco, with continued shopper support for local neighbourhood stores, underpinned by their differentiated offer and a further improvement in network competitiveness.
“Good progress was made on the business’ strategic initiatives, including those focused on competitive pricing, ranges, store standards and quality, and the further roll out the IGA online and loyalty platforms,” the Company said.
LfL sales in the IGA retail network increased 0.5%.
Wholesale price inflation was 6.2% in the half after accelerating in the second quarter (Q1: 4.9%, Q2: 7.4%).
“Supermarkets sales volumes grew in all states other than NSW and Victoria, which were cycling the impact of extensive lockdowns. Both these states returned to volume growth after cycling the lockdowns. Total volumes for supermarkets were down slightly in the half (-0.9%).
“Convenience sales increased, driven by improved competitiveness and growth in the customer base as food service demand and consumer activity normalised,” the Company said.
Food EBIT increased $3.0m or 3.2% to $98.2m reflecting the strong trading performance and an increase in the contribution from joint venture stores. The EBIT margin was maintained at 2.1%.
Liquor
Total liquor sales (including charge-through) increased $252.4m or 11.6% to $2.4bn (+36.0% 3yr basis), reflecting a recovery in sales to on-premise customers post lockdowns, and continuation of strong demand in the retail network.
“Wholesale sales grew across both the retail network and contract customers supported by continuation of the increased preference for local neighbourhood shopping and at-home consumption.
“Wholesale sales to the IBA banner group increased 1.2% (+25.7% 3yr basis) despite retail sales in the prior comparative period benefiting significantly from extensive lockdowns. Sales to IBA on-premise customers increased 47.8% due to the cycling of lockdowns, growth in underlying demand and new customers.”
RTDs and spirits were the strongest growth categories, and wine continued to perform well. “Sales of Owned and Exclusive brands increased 14.7% as the business continued to leverage the acquisition of the Kollaras private label brands.
“Liquor EBIT increased $5.0m or 11.3% to $49.3m, reflecting the contribution from strong sales growth which more than offset the impact of additional fuel, freight and labour costs. The EBIT margin for Liquor was in line with the prior comparative period at 2.0%, despite the additional costs,” the Company said.