The Metcash Limited (ASX: MTS) share price was trading 1% lower today after the supermarket and grocery supply-chain business reported a one-off hit to its financials.
Metcash is a leading wholesale distributor of supermarket products and the owner of popular retail brands like IGA, Mitre 10 and Foodland. In liquor, it owns The Bottle-O, Cellarbrations and Duncans.
Over the past month, shares of Metcash Limited have struggled to gain appeal with investors following a decision not to renew its supply contracts with 7-Eleven convenience stores on the east coast of Australia.
According to a company statement released in November, Metcash said the requirements for the new 7-Eleven contract, which is due to roll on in August 2020, would be “uneconomic”.
At the time, Metcash said the impact of losing 7-Eleven as a key customer would result in around $800 million of lower sales. However, they are, “predominantly lower margin tobacco sales”.
Metcash’ Non-Cash Impairment
Today, Metcash shareholders were able to come to grips with the accounting effect of the foregone contract.
Following a review, Metcash said it will recognise a $237.4 million post-tax impairment to its goodwill and other assets within its Food business. In the following video, we explain the difference between statutory and normalised profit:
“The review has taken into account the information contained in Metcash’s ASX release dated 22 November 2019 concerning 7-Eleven’s advice that it will not be renewing the current supply agreement with Metcash following its conclusion on 12 August 2020,” Metcash said.
“This advice is expected to result in the loss of ~$15 million EBIT (annualised) in the Food pillar, after adjusting for mitigating costs savings.”
While the negative news was somewhat expected, Metcash is also facing an increase in competition from the likes of Coles Group Ltd (ASX: COL), Woolworths Group Ltd (ASX: WOW), Aldi and, more recently, German-grocery chain Kaufland.
