Metcash to open new Victorian distribution centre as earnings surpass $470m

Metcash (ASX: MTS), the Australian wholesaler and distributor for brands like IGA, Mitre 10, Foodland and more,  has today announced a new distribution centre (DC) planned for Truganina, Victoria alongside the release of its FY22 results detailing a rise in revenue and earnings.

The approximately 115,000sqm DC will replace the company’s existing Laverton, Victoria facility and will cost Metcash around $70 million to set up, with $20 million scheduled to be incurred in FY23.

Metcash, which signed a long-term lease with the Goodman Group (ASX: GMG) for the construction of the Truganina DC, says the facility will improve the competitiveness of its independent retailers in Victoria through delivery efficiencies and by providing them access to a wider range of products.

The DC will house products for both MTS’ food and liquor pillars, and will be equipped with automation to suit the company’s retail network.

“We are delighted to be able to announce this significant long term investment for our independent retailers in Victoria, which is a reflection of our continued focus on championing their success,” Metcash CEO Doug Jones said.

“Supporting our decision to proceed was the success of our new DC at Gepps Cross in South Australia, which has been operational since December 2020, as well as strong growth in both our Food and Liquor pillars in Victoria and the recent renewal of a long term agreement to supply Foodworks stores.”

The announcement coincides with the release of Metcash’s FY22 financial results, detailing an 18.6 per cent rise in underlying profit after tax to $299.6 million.

In addition, earnings rose by 17.7 per cent to $472.3 million, while revenue grew by 5.9 per cent to $15.2 billion.

On a statutory basis, MTS’ profit after tax was up by 2.7 per cent to $245.5 million which the company says was backed by strong sales and earnings in all divisions sustained by a shift in consumer behaviour. 

The large difference between underlying and statutory profit can be explained by $22 million for Project Horizon which includes refurbishing stores, expanding e-commerce and cutting costs, as well as $27.6 million in acquisition costs, primarily oriented towards the hardware division.

Jones said he was pleased to present the FY22 results, his first as group CEO.

“The results are outstanding, another record year, and represent continued progress on the exceptional performance in FY21,” 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 [growth project] initiatives.”

Jones said the company’s retail networks in food, hardware and liquor performed well, with sales increasing approximately 3 per cent in the IGA retail network, 20.5 per cent across hardware (which includes Mitre 10, Home Hardware and Total Tools), and 8.7 per cent in the 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,” 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.”

MTS says forward momentum going into FY23 has helped push group sales up 9 per cent in the first seven weeks of its new financial year commencing on 1 May, partly buoyed by the impact of inflation.

“While elevated inflation has continued into 1H23, there is uncertainty over the level of inflation going forward, as well as how the impact of inflation and other cost of living increases may impact consumer behaviour in the retail networks of our pillars, and Metcash,” Metcash said.

“We are continuing to work closely with our suppliers and retailers to help shoppers manage the impact of inflation by providing better value options through offering a wider range of products at competitive prices.”

Group cashflow was $432.3 million at the end of FY23, achieved after an increase in working capital, including a strategic investment in inventory to keep retailers stocked through supply chain challenges.

Net investing outflows were $223.8 million, including $114.8 million of acquisitions. These purchases were predominantly in the hardware division and included the purchase of an additional 15 per cent stake in Total Tools which increased Metcash’s holding to 85 per cent.

The Metcash board has decided to pay a final dividend of 11 cents per share, bringing total dividends for FY22 to 21.5 cents per share - an increase of 22.9 per cent on the prior corresponding year which the company says reflects MTS’ higher earnings and financial position.

MTS shares were up 8 per cent at $4.46 at 10:14am AEST.