Metcash is raising $325 million to diversify into car parts and look for other opportunities after revealing disappointing full-year profit results.
Metcash chief executive Andrew Reitzer said the company’s capital raising – which halted trading on the ASX yesterday morning – was ”only to fund a number of growth and acquisition initiatives and pay for a dramatic change to our first partial automation of our warehouse distribution system”.
The grocery wholesaler’s spending spree was flagged yesterday with Metcash’s full-year results, which showed a 1.9% improvement in wholesale sales to $12.6 billion, but a profit of $90 million, which was lower than the $135.9 million expected by analysts.
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The result was 63% lower than last year, but Metcash pointed to the cost of restructuring the business and buying Franklins after a 17-month legal battle with the Australian Competition and Consumer Commission.
Reitzer also spoke of a “tough trading environment” due to an “ongoing marketing war” by chains, value-driven consumers and ongoing deflationary impacts.
Metcash will set aside $80 million to $100 million of the money raised for ”identified bolt-on opportunities” but would not give any information on what these would be.
Metcash will pay $53.8 million to acquire 71.5% of the Automotive Brands Group, which owns the Autobarn franchise, Autopro dealership groups and a car parts division.
“The Automotive Brands Group is a strong business and is a very good fit for us operating a highly effective customer-focused business that fits well with our successful model of servicing our grocery, hardware and liquor retailers,” Reitzer said in a statement issued yesterday.
He said Metcash could provide merchandising and marketing skills, supply chain expertise and infrastructure to grow the business and “realise significant synergies”.
“The automotive parts and aftermarket retail sector has proven to be resilient to economic downturns as consumers tend to retain cars, increasing maintenance and demand for car parts,” Reitzer said.
The investment follows Metcash’s purchase of the remainder of hardware retailer Mitre 10 earlier this month.
“Our success with improving and growing the Mitre 10 business has given us insight and confidence regarding the potential for growth within this market segment,” Reitzer said.