Major write-down for Metcash, moves to continue transformation plan

Metcash Limited, the grocery wholesaler to independent groups of grocers and convenience stores such as Supa IGA, IGA, FoodWorks, Friendly Grocer and Lucky 7, has announced a write-down in the value of its assets by $640 million.

The Group’s underlying earnings (EBIT) for FY15 will be within the guidance range provided to the market of $315m to $330m, Metcash said as it heads towards its full year results on June 15.

“The Group has carried out a comprehensive review of the carrying value of its assets as part of the year-end process. This review took into account the increasingly competitive trading environment, particularly in relation to the Food & Grocery Pillar,” the company said.

As a result, Metcash will reduce the carrying value of the Group’s goodwill and other assets by $640 million.

The Group will recognise an impairment of $507 million in relation to intangible assets (goodwill $442 million, other intangibles $65 million) and a further charge of $133 million in relation to other assets and obligations, predominantly in the Food & Grocery Pillar.

Following these impairments the Group’s net assets will be in excess of $1.15 billion.

The total charge of $640 million will be included as a significant item in the year end results and excluded from the Group’s underlying earnings. The impairment is primarily non-cash and will not impact the Group’s debt facilities, compliance with banking covenants or trading terms, Metcash said.

In response to the difficult trading environment, Metcash said it is taking a number of steps to strengthen its balance sheet. It recently announced it was investigating a potential IPO of its Automotive business, with sale proceeds to be invested in the Group’s balance sheet and businesses.

The Metcash Board also announced that the Board will not be declaring a final dividend for FY15 and intends to suspend dividend payments for FY16.

Group CEO, Ian Morrice, said: “While we are making progress with the Group’s strategic priorities, the Food and Grocery Pillar is operating in an increasingly competitive environment.

“We have completed the first year of our transformation plan and these capital management initiatives will provide a foundation from which the Group will continue to deliver the priorities in our strategic plan.”

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