Archive | Foodland

Supermarket owner Progressive Enterprises Ltd would once again become a standalone listed business – but listed in Australia as Foodland NZ – under a takeover & restructure proposal today from Metcash Trading Ltd.

Metcash made an offmarket offer for Progressive’s owner, Foodland Associated Ltd, but wants to leave Foodland’s New Zealand business in current ownership.

Metcash also proposed a capital reorganisation in which it would acquire the 60% of the company held by Metoz Holdings Ltd of South Africa for $A2.92/Metcash share.

Metoz became a holding company this year after its African business was taken over in a management/black empowerment buyout.

The offer values Foodland Australia at $A846 million, or $A7.18/share, a 39% premium to its Metcash-assessed $A610 million $A5.18/share) enterprise value. That’s based on an average weighted Foodland share price over the previous month of $A19.21.

The whole Foodland business has an equity value of $2.263 billion. Including $A230 million net debt, its enterprise value is $A2.493 billion – 75% of that in New Zealand.

The New Zealand business has an enterprise value of $A1.883 billion ($A14.03/share), assuming all debt remains with Foodland NZ.

Metcash would cement itself as clear No 3 player in the Australian retail market, complete the national rollout of IGA (Independent Grocers of Australia), realise synergies in terms of margins & costs “and the creation of a more attractive investment proposition through increased scale, liquidity & a broader investor base,” chief executive Andrew Reitzer said.

The proposal mechanics

Metcash is proposing that Foodland shareholders get 2.44 Metcash Australian preference shares (A shares) or $A7.18 cash, and one Metcash NZ preference share (NZ shares)/Foodland share.

On completion, the NZ shares would convert into ordinary shares in Foodland NZ Ltd and that company would be separately listed on the Australian Stock Exchange, subject to shareholder approval.

In the capital reorganisation, a new holding company would buy Metoz’s 60% of Metcash, and the shares in that new company distributed to Metcash shareholders on a 1:1 basis. The new holding company would then be renamed Metcash.

That part of the proposal relies on 2 schemes of arrangement in South Africa & Australia. The South African scheme has 47% binding support already from Metoz’s 2 main shareholders – provided no superior offer emerges.

To finance the transactions, Metcash launched an underwritten equity placement of 90 million shares today at a minimum $A2.60/share, with a retail purchase plan available to retail shareholders on the same terms.

Mr Reitzer said today’s proposal turned round a “highly conditional & incomplete” approach Foodland had made to certain Metoz shareholders which could have led to a conditional Foodland offer to buy Metcash at $A3.30 cash/share.

Metcash was concerned at the prospect of due diligence by a competitor in the event that bid didn’t proceed or failed.

FAL’s Coates questions the deal

Foodland group managing director Trevor Coates said the Metcash offer was “complex & highly conditional” and advised shareholders to take no action yet.

“This proposal is surprising given the extent of the recent detailed & confidential negotiations we have been having with Metoz & its major South African shareholders, as well as recent discussions with Metcash,” Mr Coates said.

Mr Coates put the offer this way:

It relies on breaking up the successful Foodland business
It relies on offering Foodland shareholders a share in a business they already own, Foodland NZ, and
It incorporates an offer of preference shares, which he said wiuld have inferior voting rights to the ordinary shares Foodland shareholders already owned.

Metcash & Metoz shareholder meetings should be held in late January, scheme meetings mid-March for late-March completion.

Metoz was called Metro Cash & Carry Ltd until 8 November. It sold its South African & African operations to management earlier this year and retained its stake in the Australian businesses, which trade as IGA Distribution, Campbell’s Cash & Carry and Australian Liquor Marketers.

The Metoz business began in South Africa in 1968 and spread through Africa and internationally. It bought 72% of Davids Ltd in Australia in 1998 (now Metcash). Carlos dos Santos is group chief executive in South Africa and is non-executive chairman in Australia.

Progressive Enterprises now operates 148 supermarkets trading under the Countdown, Foodtown & Woolworths banners and 26 Woolworths at Gull micromarkets & convenience stores. Progressive is also the franchise co-ordinator for the FreshChoice and SuperValue franchise banner groups.

Website: Metcash

Foodland Associated

Foodland Associated Ltd increased its after-tax profit by 18.8% to $A142.7 million.

The result included $A37.2 million ($A25.8 million last year) of unusuals & discontinued operations. Excluding those, the increase was 11.9% to $A105.5 million.

Earnings/share rose 18.1% to A121.98c.

Sales from continuing operations rose 2.6% to $A5.9 billion, but including discontinued operations they were down 5.6% to $A6 billion.

Ebita rose 5.3% to $A299.4 million, ebit rose 6% to $A256.5 million, pretax profit rose 18% to $A225.9 million.

The New Zealand supermarkets, biggest part of FAL’s business, increased earnings by 9.1% to $A149 million on sales up 3.2% to $A3.3 billion.

Group managing director Trevor Coates said the combined benefits from store rebranding (Woolworths & Foodtown) together with the increased focus on value across all store brands, particularly at Countdown, have resulted in strong sales growth & significant market share increases, a trend we anticipate will continue.

“Despite reinvesting a portion of our net synergy benefits in driving topline growth, the contribution from our New Zealand supermarket division has been lifted by 10.4% (in local money) to $NZ169 million.

“The overall contribution from Progressive Enterprises Ltd was $NZ180.5 million. This compared to $NZ166.4 million in 2003 and $NZ135.5 million at the time of the acquisition of Woolworths NZ in 2002.”

Pascoes to buy shops, F&P Appliances takes finance side

Fisher & Paykel Appliances Holdings Ltd and jewellery retailer James Pascoe Ltd have entered into an agreement to buy Farmers Holdings Ltd, the ultimate holding company for the Farmers department store chain, from Foodland Associated Ltd of Perth for $311 million in cash.

Foodland tried for 6 months to sell Farmers before withdrawing it from sale last month.

James Pascoe Ltd is a family-owned company which owns & operates the 163 Pascoes stores throughout New Zealand & Austalia. The acquisition will be undertaken by a subsidiary, Hector Paskel Ltd.

It will take over the Farmers retail chain and F&P Appliances will take over the Farmers Finance and Farmers Credit Card businesses. F&P Appliances will debt-fund its $188.7 million share of the transaction. It has also entered into a 20-year arrangement to supply financial services to the retail business on an exclusive basis, including exclusivity of the Farmers credit card.

Farmers Finance has $300 million of consumer finance receivables and more than 500,000 active customer accounts, 350,000 of them holding a Farmers Card. These receivables generate annualised ebitda (earnings before interest, tax, depreciation and amortisation) of $24-28 million, 3 times greater than the pretax earnings of F&P Appliance’s own finance company, Fisher & Paykel Finance.

Farmers raises earnings but that won’t stop sale

Foodland Associated Ltd, owner of the Progressive supermarket chain and buyer of the Woolworths chain in New Zealand, increased net profit after tax for the 26 weeks to 2 February by 26.8% to $A60 million, a record result on record 1st-half sales from continuing operations which rose 50.5% to $A3.22 billion.

Earnings before interest, tax & goodwill amortisation (ebita) from continuing operations (& before unusuals) rose 49.2% to $A144 million.

After buying Woolworths NZ Ltd in June 2002, FAL said Progressive’s supermarkets division increased ebita by 150.6% to $A67.4 million.

Earnings/share from continuing operations before unusuals & goodwill amortisation rose 14.9% to A70c. Earnings/share from all sources rose 5.3% to 51.8c, which FAL said was well ahead of expectations when it bought Woolworths.

The board has increased the interim dividend by 14.9% to A38.5c, fully franked, representing a 55% earnings/share payout before goodwill amortisation. The company said its final dividend for the year might not be fully franked, and in those circumstances it would adjust the payout ratio to compensate.

The board said FAL’s dividend reinvestment plan would be suspended pending the outcome of the review of the Farmers department store & consumer finance division, which might lead to its sale. Farmers increased earnings by 24% to $A23.8 million, despite the weather’s disruption of the summer clothing sales season.

Group managing director Trevor Coates said the expected Woolworths synergies had already been exceeded and were growing. “Our latest indications are that fiscal 2003 synergy benefits will exceed $NZ26 million, well in excess of the original $NZ10 million forecast, and we expect these will continue to increase. In addition, the performance of Progressive’s Countdown and Foodtown supermarket banner groups continues to improve as a consequence of enhanced customer value & brand presence, more attractive stores & improved standards.

“Work on extending the Auckland distribution centre is well underway and we expect to complete the centralisation of distribution operations prior to the end of the financial year. Plans are well advanced to refurbish & rebrand the majority of the nine Woolworths Big Fresh stores and several new greenfield sites are under consideration.”

Mr Coates said the Action supermarkets division continued to improve its performance in Queensland. “Sales are showing an improving trend as brand recognition improves, house brand ranges are extended and store standards are lifted. Sales mix & margins are benefiting from the phased introduction of concepts operating successfully in West Australian fresh food departments.”

Farmer’s up 5.1% and Progressive up 10.4% on same-store basis

Foodland Associated Ltd increased second-quarter sales 29.6%, and 11.3% on a same-store basis (in $A).

In New Zealand, Farmer’s increased sales by 9.7% (in $NZ), including the Deka stores converted to Farmer’s annexes, and a contribution for part of the quarter from the mew Bayfair store in Tauranga.

Farmer’s same-store sales rose 5.1%, including transfer of sales from existing stores to the new Botany and Bayfair outlets.

Progressive’s supermarkets increased sales by 14%. The 10.4% same-store increase included a contribution from the resited Foodtown Takapuna (next to its old Barry’s Pt Rd site), and from the Countdown which replaced 3 Guys at Lynfield.

Excluding the Rattrays Cash & Carry business, sold in the second quarter of the previous year, wholesale sales (in $NZ) rose 2%, or 2.1% on a same-store basis.

FAL chairman Don Humphreys was wary of forecasting first-half 2002 results at the annual meeting in December because of the importance of Christmas trading to Farmer’s. With those results in hand, he said group profit from continuing operations in the 5 months to 31 December rose 19% (after numerous positive & negative exclusions).

These included gains on property sales, goodwill & lease premium amortisation, borrowing costs, tax & unusual items, but excluded the contribution from the new Action Queensland supermarket division (ex-Franklins).

The first-half 2002 results will include the $A3 million cost of trying to buy Woolworths NZ Ltd (like Franklins in Australia, from Jardine of Hong Kong), as an unusual item.

In Australia, FAL Wholesale increased sales by 13.1% in the second quarter. After adjusting for sales to new Action supermarkets, the comparable sales increase was 12.3%. Action bought 40 Franklins stores and added 3 stores in Western Australia. Total sales rose 121.4%, and same-store sales rose 7.3%.

Closure of 60-store chain tossed into FAL’s report on record first-half profit

“Oh, and we turned the lights out in New Zealand…” That’s roughly how the statement by Foodland Associated Ltd, headquartered in Perth, went on its decision to close the 60 Deka stores in New Zealand.

Seventeen of the stores will be turned over to become part of the Farmers chain, also 100% owned by FAL. The decision affects 468 fulltime staff and twice as many part-timers, but FAL said the group would need to hire about 400 people for the 17 stores being retained and in other parts of the Progressive group in New Zealand.

The company statement on the closure came two-thirds of the way down its half-year result, where it reported a record profit after tax and before abnormals for the 26 weeks to 28 January of $A21.6 million, compared to $A38.5 million previously. At least one of those figures is wrong; I’ll correct it when I find the right one. Earnings/share fell 48% to A22.6c.

FAL said its retail grocery divisions produced record ebit:sales margins and the wholesale grocery operations in both Western Australia and New Zealand performed well.

“Farmers’ performance until early December was affected by a combination of adverse consumer sentiment within the New Zealand economy and unfavourable seasonal conditions.

“A strategic review of the long-term viability of Deka has been prompted by both trading losses for the half of $NZ3.3 million and the prospect of a continuing deterioration in the performance of that business.

“The group has decided to accelerate the exit from the Deka brand and has fully provided for this outcome by creating provisions of $20.7 million. 17 of the key Deka sites will be transferred to the Farmers store network. Despite non-recurring losses resulting from the Deka and Rattrays businesses, the board has resolved to maintain the interim dividend at 26c/share (fully franked).”

Farmers’ sales up but earnings down

Foodland Associated Ltd, of Perth, said Farmers’ sales rose 13% to $NZ170.7 million for the quarter, helped by opening of the Botany town centre store. Same-store Farmers’ sales rose 5.3%, and sales for the year rose 6.9% to $NZ672 million.

Earnings before interest, tax & amortisation (ebita) rose 6.9% to $A132.5 million across the group for the 52 weeks to 29 July. But Farmers’ second-half ebita fell 42% to $A10.4 million, and full-year fell 31% to $A25.5 million.

The group has two Farmers’ stores being refurbished (Bayfair in Tauranga and Invercargill), the Henderson Home Centre was closed, nine former Deka stores were converted to Farmers’ after three earlier conversions and with one to complete, and 27 other Deka stores were closed.

Supermarket sales rose 7.8% to $410.2 million, 7.5% on a same-store basis, for the quarter, and 6.2% to $NZ1.63 billion for the year. Second-half supermarket ebita in New Zealand rose 44% to $A18.4 million and full-year rose 39% to $A36.5 million.

The group has a new Foodtown being built at Auckland International Airport, a larger Foodtown replacing the existing one at Takapuna, and a larger Countdown replacing an existing 3 Guys at Lynfield. Sales by the group’s three main West Australian franchise chains rose 14.2%.

New Zealand wholesale sales (excluding the Rattray cash & carry business, sold in the second quarter) rose 9.9% to $NZ86.5 million in the fourth quarter, 6.6% on a same-store basis, and 10.7% to $345.9 million for the year, reflecting strong trading by Progressive Enterprise Ltd’s Freshchoice and SuperValue franchises.

Group’s big Australian purchases change perspective

Foodland Associated Ltd said it had started a strategic review of its New Zealand department store & consumer finance subsidiary, Farmers Holdings Ltd.

Group managing director Trevor Coates said: “Farmers’ continues to trade well with positive sales growth & stable margins. Our interim results will confirm this.

“However FAL has recently completed 2 major acquisitions which have confirmed the group’s position as a major participant in the Australasian supermarket & grocery wholesale industries. As a result of this, we are reviewing our ownership position on Farmers, our only non-food business.”

Mr Coates said Farmers’ new management team had built the profitability of the business, including Retail Financial Services, the largest non-bank consumer finance business in New Zealand with assets exceeding $300 million.

“It may well be that divesting Farmers will provide a clearer focus & direction for both FAL and Farmers to the advantage of all stakeholders. This will be determined by the results of our strategic review.”

Foodland Associated has engaged financial advisors ABN Amro to help evaluate the alternatives.