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Metcash shares dive on $270m hit in SA

Metcash shares have plummeted 14 per cent after the grocery supplier flagged a potential $270 million sales hit due to one of its customers shunning its new South Australian distribution centre.

Metcash on Monday said it is seeking approval for a new distribution centre, but that Drakes Supermarkets will not commit to Metcash beyond the end of the parties’ current South Australia agreement in June 2019.

Total sales, including tobacco, to Drakes Supermarkets in South Australia were about $270 million in the 12 months to April 30.

Metcash shares, which had been trading at around a five-year high, dropped on the news.

At 1200 AEST, they were down 51 cents, or 13.9 per cent, at $3.17.

Metcash, which also supplies IGA supermarkets, said it will weigh the implications of the news with a view to updating investors on or before the release of its full-year results on June 25.

The decision by Drakes is likely to lead to an impairment to the carrying value of Metcash’s goodwill and other assets.

The supermarket supplier said it expects to report a 1.2 per cent sales decline at its supermarkets and convenience business for FY18, and a 3.6 per cent sales decline at its wholesale business – excluding tobacco.

Metcash said Drakes had not advised it of any intention to change its supply arrangement in Queensland.

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