Metcash sees slow start to the year as 7-Eleven contract loss bites

Independent grocery distributor Metcash has seen a sluggish start to the financial year, with the retailer feeling the impact of the loss of two major contracts and a slow home improvement market.

Group revenue was up just 0.5 per cent at $7.21 billion, markedly slower growth than the 2.3 per cent increase the company saw in its first-half results in the previous financial year. The company posted an after-tax loss of $151.6 million for the half, largely due to a $234 million write-down to Metcash's goodwill following the loss of its

Metcash has reported a slow start to the financial year.

Underlying earnings before interest and tax for the half also declined, falling 5.3 per cent to $149.7 million, which the company attributed to the loss of its supply which came into effect on September 30.

Apart from the loss of the Drakes contract, chief executive Jeff Adams said it had been a strong period for the company's supermarkets business, which primarily supplies independent grocers IGA.

Like-for-like sales for the IGA network rose 0.4 per cent, compared to a 0.2 per cent drop in the last half, a result Mr Adams said was "pleasing" and reflective of improved consumer confidence.

Metcash CEO Jeff Adams.

"I am pleased to report that our supermarkets business delivered wholesale sales growth, including on an ex tobacco basis after adjusting for the impact of ceasing to supply Drakes," he said.

"This is the first reported increase in wholesale sales ex tobacco since [the 2012 financial year]."

Metcash's liquor divisions, which includes brands like Cellarmasters, reported a 1.7 per cent uptick in sales and its sixth consecutive year of earnings growth, which edged up $500,000 to $29.6 million.

But the company's Mitre 10 and Home Timber and Hardware brands slumped significantly, with sales down 4.2 per cent due to a slowdown in construction activity and the loss of a large Queensland customer. Earnings were also down by $500,000.

For the rest of the financial year, the company is predicting total supermarket sales to decrease, largely due to the Drakes contract loss, and the slowdown in its hardware division to continue.

"Our financial position remains strong and this provides us with flexibility to fund our current initiatives, as well as consider future growth opportunities that create value for our shareholders," Mr Adams said.

Metcash will pay shareholders a dividend of 6 cents per share, down 0.5 cents on the prior half and payable January 23.


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