By Aimee Chanthadavong

Price deflation, greater investments in marketing and intense competition has impacted Metcash’s first half year results for 2014.

The company recorded a 6.3 per cent decline in EBITA to $193.3 million. Despite this, wholesale sales grew 4.8 per cent to $6.58 billion and reported a 4.9 per cent revenue increase to $6.64 billion. Also, profit after tax rose 20.6 per cent as a result of discontinued operations costs as the exit from Franklins retail operations has now been completed.

Reflecting on the results, Metcash Group CEO Ian Morrice said the results show modest growth in tough conditions.

“We continue to experience very tough trading conditions and have announced results in line with the guidance we gave the market at our AGM. We have seen further food price deflation which has a significant deleveraging impact on us as a wholesaler,” he said.

“The major supermarket chains have persisted to distort the market with cross subsidisation through their domination in grocery and fuel. The use of market distortive devices such as fuel shopper dockets, particularly at excessively high predatory levels, makes it very difficult for independent retailers to compete on a level playing field.

“In order to combat these conditions we have invested more heavily in advertising and associated marketing capabilities.

“Revenue growth reflects the addition of new business to the group and strong cashflow reflects prudent working capital management. Our liquor business delivered another great result, Mitre 10 continues to strengthen its network and the Automotive business has doubled in size with the acquisition of ATAP during 1H14.”

Metcash’s food and grocery division experienced a 1.5 per cent decrease in sales with a like-for-like wholesale sales falling 1.3 per cent. This was mainly due to price deflation of 1.3 per cent that continued to impact the food and grocery business particularly in fruit and vegetables, which saw deflation of 13.9 per cent.

Hardware sales increased 6.7 per cent on 1H13, with the uplift driven by strong trade performance. This represents growth of 2 per cent on a like-for-like basis.

Looking forward, Morrice said the focus is on the company’s Strategic Review, which was first mentioned at the company’s 2013 financial results in June. The review is expected to help develop a clear plan to adapt the food and grocery business to the increasingly competitive deflationary environment.

“The review is well advanced with clear conclusions on our vision to ensure long-term growth at Metcash,” he said.

“A key part of this review is focussed on how we turn around our Food & Grocery business and make the significant model changes necessary.

“Once we have completed the final stages of our planning and ensured that we have alignment with our Retailers and Suppliers, we will provide the market with more details at an Investor Strategy Day planned for March 2014.”