Metcash's core food and grocery business suffered a significant fall in profit as the group tried to keep up with the major supermarkets' price cuts, with the company warning of ongoing pressure in Western Australia following Aldi's expansion into the state.
Metcash's core food and grocery business suffered a significant fall in profit as the group tried to keep up with the major supermarkets' price cuts, with the company warning of ongoing pressure in Western Australia following Aldi's expansion into the state.
The group, which supplies independent supermarkets, including IGA, Foodland and Foodworks stores, has posted a $216.5 million annual net profit, bouncing back from a $384.2 million loss 12 months ago.
Metcash shares initially rose on the good headline figure but fell as the market absorbed the details, with the stock plunging by up to 14 per cent.
Metcash's earnings before interest and tax (EBIT) was down 7.4 per cent to $275.4 million in the 12 months to April 30 as a decline in its supermarket earnings offset growth from its liquor and hardware businesses.
Its supermarkets' EBIT declined by about $21 million due to a $45 million a year investment in helping IGAs across the country match Coles and Woolworths prices on a range of core items.
Metcash chief executive Ian Morrice also warned the ongoing pressure to lower prices and discount retailer Aldi's expansion into South Australia and WA would continue to hurt its profit margins.
"We are anticipating continued deflation in the market and there's new competition, particularly in Western Australia and South Australia," Mr Morrice told reporters after unveiling the group's results.
"We see competitive conditions will continue to be challenging."
However, Mr Morrice noted encouraging signs, saying the price match program, which now involves about 1,000 IGA stores, was resulting in a lift in sales.
He said IGA's like-for-like sales rose 1.4 per cent, compared with 0.7 per cent in the previous year.
Metcash, which also owns hardware chain Mitre 10 and liquor businesses including Cellarbrations, recorded a 1.3 per cent lift in sales revenue to $13.54 billion in FY16.
The company sold its automotive business for $285.4 million last year, using proceeds to pay down debt and cover restructuring costs.
Mr Morrice said a focus on debt reduction and cash management had helped put Metcash in a position where it could reintroduce dividend payments in FY17 after it stopped them nearly two years ago.
Investors were looking for signs the supermarket business was stabilising, optionsXpress market analyst Ben LeBrun told AAP.
"But those numbers show it's still in decline," he said.
"The outlook in terms of costs rising, deflation and competition have not done anything to allay concerns that Metcash's core supermarket business is under significant pressure."
Metcash's share price was down 26 cents, or 12.3 per cent, to $1.86 at midday.
