Metcash reveals $352m hit to business, predicts full year loss

Grocery wholesaler Metcash (ASX: MTS) is expecting a greater-than-expected $352 million hit to its business and a full year loss after it lost a key customer in South Australia.

Last week Metcash, which supplies the IGA and Foodland supermarkets, announced that Drakes Supermarkets would no longer be a customer after June 2019.

Metcash has now outlined the effect of that and says it will record a $318 million non-cash impairment against goodwill and other intangibles, plus a $34 million asset writedown when it announces its full-year results on June 25.

When it announced the loss of Drakes Supermarkets last week, it predicted a potential hit of around $270 million.

"These impairments are non-cash in nature, have no impact on the company's debt facilities, compliance with banking covenants, or its ability to undertake capital management initiatives," Metcash said in a statement.

Metcash says the writedowns were mostly the result of losing Drakes but also cited "weakness in the Western Australian economy and the ongoing intensity of competition in the sector".

Drakes' decision was taken because it wasn't happy with Metcash's  new South Australian distribution centre.

Metcash, whose South Australia operations have already been hit by the arrival of Aldi in 2016, says other customers have indicated support for the new distribution.

The food and grocery giant last year reported a 20.6 per cent fall in full-year net profit to $171.9 million, and flagged continued pressure on food sales amid tough market conditions.

At around midday, MTS shares were down by around 4 per cent to $2.66. The price has declined by nearly 28 per cent from $3.68 since May 25.

Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.

Business News Australia