Tighter margins leave Musgrave profits flat

Acquisitions boosted sales at grocery franchiser Musgrave in 2005, but the group's latest figures show that tighter margins left profits flat.

The group, best known for its ownership of the Centra and Supervalu supermarket franchises, made €72.5 million profits last year, according to accounts filed with the Companies' Registration Office.

The figures show that Musgrave had sales of €4.36 billion in 2005, a 28 per cent increase on the €3.42 billion it turned over the previous year.

Musgrave bought the Londis franchise group in Britain and C&R Frozen Foods in 2004. Last year was the first in which they made a full contribution to sales.

Along with that, it acquired Variety Foods (NI) in 2005, and this added €33.4 million to revenues. Stripping out the contribution of these companies, sales grew 4.6 per cent in 2005.

The group's directors' report claims that tighter margins and a fall in the price of some grocery products meant earnings did not keep up with turnover growth.

Profit on ordinary activities before interest payments was level at €98.3 million.

Following interest payments of €25.8 million, largely related to bank debts and financing costs, the company ended the year with pre-tax profits of €72.5 million, 5.4 per cent ahead of 2004.

The group said that the fall in interest charges was the main factor behind the increase in pre-tax profits.

Shareholders benefited from a €14.7 million in dividend payouts, the equivalent of 24.9 cent a share. This was €1.1 million more than the €13.6 million paid out in 2004.

The main beneficiaries of the dividend payout were the Musgrave family, who control the group, and an employee share ownership trust, which owns just under 1 per cent of the company.

Net debt dropped by €49.2 million to €327 million, leaving it at 136 per cent of shareholders' funds. These stood at €240 million at the end of 2005 compared with €215 million a year earlier.

Musgrave is one of the biggest players in the Irish grocery industry, and operates on a 32-county basis.

It owns the Centra and SuperValu convenience store and supermarket franchises in Ireland.

In Britain, it owns the Londis and Bugden's franchises, as well as Dialsur in Spain. These businesses are largely owner managed, but are supplied with a range of fresh produce by Musgrave, which also provides branding and other support to the individual store owners.

This year, the Government abolished an order that banned retailers from selling non-perishable groceries at less than their wholesale price, following years of debate and an investigation by an Oireachtas joint committee.

The move was widely expected to introduce greater competition in food prices.

However, the directors' report states that it has not materially affected Musgrave's operations, and says the group is well positioned to "challenge for further growth in the post Groceries Order market environment".