Musgrave reports loss of €94.9m for 2013 after poor trading in UK

Cork wholesaler takes write down of €131 million on British assets

SuperValu owner  Musgrave recorded a loss of €94.9 million in 2013.

SuperValu owner Musgrave recorded a loss of €94.9 million in 2013.

 

Cork-based wholesale grocery group Musgrave recorded a loss of €94.9 million in 2013 largely due to poor trading in Britain.

The company was dragged into the red by €141.2 million in exceptional items. This comprised a write down of €131 million on the value of underperforming assets in Britain and costs of €12.2 million associated with its decision last year to axe the Superquinn brand and integrate its 24 stores into the SuperValu network.

Musgrave’s group turnover declined by 1.9 per cent to €4.8 billion last year while its operating profit fell to €68 million from €82.4 million in 2012.

Its interest costs reduced to €9.6 million from €12.4 million in 2012 as its net debt declined by €19.3 million to €120.9 million.

Sales in Britain fell by 3 per cent to €1.5 billion but the company declined to quantify the extent of trading losses. “The losses are sizeable ...but manageable,” Musgrave chief executive Chris Martin told The Irish Times today.

Musgrave responded to its difficulties by clearing out the management team, which was led by Donal Horgan, and installing former Tesco executive Peter Ridler as managing director to lead a turnaround.

“In taking that write down, its’s enabling us to clear the decks in the UK to enable us to go forward,” Mr Martin said, adding that Musgrave remains “committed to its Budgens and Londis brands there.

Commenting on its problems in Britain, Mr Martin said: “Straight up, there are market issues and there are management issues. We pursued a growth strategy, which was relaxing our rules and disciplines, particularly around what sort of retailers we take on and also the standards that they have to put in place. We now have a turnaround situation.

“We’ve got to get to a core of good retailers who want to work with us and who we want to work with and then we’ve got the basis of a big business.”

While Musgrave owns the Budgens and Londis brands in Britain, the shops are run by independent retailers on a franchise basis. Musgrave then wholesales product to those shops.

“We have minimum purchasing loyalty requirements,” Mr Martin explained. “Some of those rules were relaxed [in Britain] on the basis that we’d get those accounts in and they would begin to comply with the way that we work but they didn’t.”

On when Musgrave might return to the black in Britain, Mr Martin said: “It’s going to take time. We are expecting reduced losses this year and it’s probably going to take two to three years to get it into the right shape for what we want.”

Musgrave’s difficulties there prompted it to reduce its dividend to shareholders this year by 10 per cent, having paid €16.9 million in each of the past two years.

Mr Martin said he did not consider resigning in light of Musgrave’s poor performance in Britain.

“No I didn’t. Clearly I’m responsible for the group. We’ve got a strong track record as a [management] team. My attention turns to ensuring that this turnaround actually delivers.

“Mistakes have been made. We’ve had dialogue with our shareholders. Clearly, it’s a tough set of results. They’re disappointed, we’re disappointed, but it’s absolutely fair to say that they and the board are committed to the leadership of the business.”

Musgrave also reported loss of just more than €1 million in Spain where sales were flat last year at €184 million.

“It [the Spanish business] has started to grow again at the back end of last year,” he added. “Dialprix has now displayed 40-odd weeks of like-for-like growth. We’ll see the business back in profit again this year.”

In Ireland, Mr Martin said the integration of Superquinn with SuperValu was “going well and on plan”. This move has increased SuperValu’s market share in Dublin to 22 per cent from 8 per cent previously. “It’s springboarded SuperValu and given us a real presence in Dublin,” Mr Martin said.”We’ve got a true national brand now that resonates well.”

He said its SuperValu (1.1 per cent), Centra (3.5 per cent), Daybreak (3.8 per cent) and MarketPlace (5.3 per cent) brands all increased their sales last year and outperformed the market.

Commenting on current trading, Mr Martin said: “It’s still incredibly tough. When you look at retail spending, there is still a shift away from food plus there are also structural changes within food with a shift [by consumers] to [shopping] little and often. I think the world we operate in is still going to be tough for the next two to three years.”

“Given that we’ve still got issues to address in Britain, I don’t see profits moving forward this year but we do see our debt reducing. The focus now is continuing to drive the Irish business and turning around the British business.”