Big fall in tobacco sales burns wholesaler's profits

IGA supplier Metcash has delivered a $142.2 million first-half net profit, up barely 0.3 per cent from a year ago, after tobacco sales dropped by 35 per cent.

Independent retail supplier Metcash has posted a small rise in interim profit, after a further collapse in tobacco sales.

The wholesale distributor to IGA, Mitre 10, Total Tools, the Bottle-O, Cellarbrations and other independent brands made a $142.2 million net profit in the half-year to October 31, up 0.3 per cent from a year ago.

The group's underlying earnings (before interest, tax, depreciation and amortisation) rose by two per cent to $367.2 million, while sales revenue grew 0.1 per cent to $8.48 billion.

"The business has delivered solid results in tough trading conditions, supported by disciplined operational performance and the successful execution of our strategy," said group chief executive Doug Jones.

Food sales were up 7.2 per cent to $4.5 billion, which Metcash said was underpinned by its independent retailers' differentiated and localised offerings.

Tobacco sales continued to decline following the introduction of new tobacco laws that went into effect on July 1, dropping 35.1 per cent to $637.8 million.

The rules require warning labels like "poison in every puff" on individual cigarettes, and ban flavourings such as menthol or mint.

Metcash said it was managing the decline and helping its independent retail network to transition away from tobacco sales.

Metcash's liquor business grew sales 1.4 per cent to $2.6 billion, reflecting market share gains in Australian packaged liquor and more wholesale sales to on-premise customers. 

However, it said the overall liquor market remained challenging.

Sales in Metcash's hardware and tools division rose 2.5 per cent to $1.9 billion, amid strong demand for building supplies and timber in Queensland, Western Australia and South Australia.

Metcash will pay its shareholders an interim dividend of 8.5 cents per share, fully franked.