Musgrave profit down 20% to €75.5m

CORK-BASED wholesale grocery group Musgrave expects further erosion in its profits this year as it attempts to help its retailers cut their prices by more than €140 million in response to a price war ignited by the recession.

Musgrave’s annual report yesterday showed that its pretax profit declined by 20 per cent to €75.5 million and the company said this would drop again this year.

“The market is going to be very tough for the next two to three years,” Musgrave chief executive Chris Martin said yesterday.

“We are planning a lower profit this year.”

Musgrave’s sales last year were flat at €4.8 billion. The group supplies a network of stores in Ireland, Britain and Spain.

Musgrave said it invested more than €140 million in price reductions over the past year in thousands of products across its network of Irish stores in response to consumer demand for value.

“That has worked well for us,” Mr Martin said.

He said the Irish grocery market had contracted by 3 to 5 per cent, but Musgrave’s business was down only 2 per cent.

“The Irish economy is tough . . . the Irish grocery market is tough,” he added.

Mr Martin said about 12 of its retail stores had closed in the past year but not in the Border areas, where most pressure is being exerted on retailers.

“In fact, we’ve had a few store openings in Border areas.”

In response to questions about the price differences between North and South, Mr Martin said it cost 25 per cent more to run a store in Dublin than in Belfast. This equates to roughly a 10 per cent difference in prices.

He said the strength of sterling had exacerbated the price differences.

Mr Martin said a number of cost containment measures had been taken at the business. About 170 staff have left the company and senior executives have taken a 5 per cent pay cut. A pay freeze is in place for other employees.

In Ireland, Centra retailers achieved sales of €1.5 billion, up 9.3 per cent, while SuperValu achieved retail sales of €2.3 billion, up 3.4 per cent.

The group said sales in its cash and carry businesses in the Republic and Northern Ireland were flat.

In the UK, where the company operates the Budgens and Londis retail brands in Britain, and SuperValu, Centra and Mace symbols in Northern Ireland, sales rose by 7.3 per cent to €3 billion.

Musgrave said it recently acquired 13 Somerfield convenience stores in Britain for £15 million (€16.75 million). These will be rebranded as Budgens stores and sold to independent retailers.

Mr Martin said the UK business was performing well. “We are showing good growth and growth in 2009 as well,” he said.

Musgrave operates about 2,400 stores in the UK, where it has a market share of 1 per cent.

In Spain, Musgrave’s turnover rose last year to €196.5 million from €192.2 million.

In spite of the reduced profits last year, Musgrave increased its dividend payments to its family shareholders by about 20 per cent to €20.2 million from €16.5 million. Mr Martin said the dividend payment would be reduced by 10 per cent this year.

Musgrave’s net debt declined in 2008 by €10 million to €86 million, but its pension deficit doubled to €46 million.

The annual report shows that Musgrave devalued its land and buildings by €38.2 million last year to €159.7 million.

When asked if the downturn might result in the family-owned business being sold to a large overseas operator, Mr Martin said: “We are absolutely clear that there will be no change in ownership and structure to the business going forward.”