Safeway — Proxy Contest (April 2004)
35 slides from Safeway's proxy contest presentation, Apr 16, 2004
Slide 1: Free Cash Flow Reconciliation
Free Cash Flow Reconciliation $ Million 1998 1999 2000 2001 2002 Net Cash Flow From Operating Activities $ 1,253 $ 1,488 $ 1,901 $ 2,232 $2,035 $1,610 Cash Paid For Property Additions (1,075) (1,334) (1,572) (1,793) (1,467) (936) Proceeds From Sale Of Property 48 143 159 133 113 189 Other (14) (50)
Slide 2: Institutional Shareholder Services April 2004
Institutional Shareholder Services April 2004 April 2004 1
Slide 3: Safe Harbor Language
Safe Harbor Language This presentation may contain forward-looking statements. Such statements may relate to topics such as sales, gross margins, earnings growth, operating improvements, cost reduction, capital spending, acquisitions and dispositions, debt reduction, labor relations and other relate
Slide 4: Attendees
Attendees Paul Hazen Independent Director Steve Burd Chairman, President And CEO Robert Edwards EVP And Chief Financial Officer Larree Renda EVP—Retail Ops, HR, Public Affairs, Labor And Government Relations Robert Gordon SVP And General Counsel Alan Miller Innisfree M&A Jennifer Shotwell Innisfree
Slide 5: Safeway Inc.
Safeway Inc. Carrs Vancouver 75 Alberta 85 Winnipeg 56 Seattle 207 Portland 120 Northern California 262 Southern California Vons 326 Phoenix 114 Denver 143 Dominick’s Dominick’s 113 Genuardi’s Eastern 179 Texas Randall’s/ Tom Thumb 137 Casa Ley 108 2003 Sales $35.6 Billion Operating Stores 1,817 Mar
Slide 6: Agenda
Agenda n Committed To Creating Superior Shareholder Returns n Focused On Executing A Strategy To Address The Changing Competitive Environment n Committed To Excellent Corporate Governance
Slide 7: Creating Superior Shareholder Returns
Creating Superior Shareholder Returns n Long-Term Returns To Shareholders Have Been Superior To The Market And Our Peer Group n Recent Share Price Performance Is In-Line With Our Peer Group n Safeway Continues To Operate With Industry-Leading Margins And Returns To Shareholders
Slide 8: Share Price Performance
Share Price Performance Burd Tenure—October 1992—April 2004 Safeway SWY 667% S&P 500 S&P 239% Supermarket Composite* Comp 80% *Supermarket Composite Consists Of Albertsons, Kroger, A&P, Ahold And Winn-Dixie
Slide 9: Recent Share Price Performance
Recent Share Price Performance April 1999—April 2004 S&P 500 S&P (15%) Safeway SWY (59%) Supermarket Composite* Comp (66%) *Supermarket Composite Consists Of Albertsons, Kroger, A&P, Ahold And Winn-Dixie
Slide 10: Drivers Of Share Price Decline
Drivers Of Share Price Decline n Price/Earnings Multiple Decline – A Marketplace Concern That Wal-Mart Will Dominate Food Retailing At The Expense Of Conventional Supermarkets – Slow Down In Industry Consolidation n Softer Earnings Resulting From: – Weaker Sales/Economy – Escalating Employee Costs
Slide 11: Strong Cash Generation
Strong Cash Generation Free Cash Flow* $211 1998 $248 1999 $420 2000 $512 2001 $639 2002 $815 2003 *Net Cash Flow From Operating Activities Less Net Cash Flow Used By Investing Activities Excluding Cash Paid For Acquisitions
Slide 12: Agenda
Agenda n Committed To Creating Superior Shareholder Returns n Focused On Executing A Strategy To Address The Changing Competitive Environment n Committed To Excellent Corporate Governance
Slide 13: Executing A Clear Strategy
Executing A Clear Strategy n Positioning For Long-Term Competitiveness n Creating A Superior Retail Offering n Securing A Long-Term Future For Our Employees, Customers And Shareholders
Slide 14: Executing A Clear Strategy
Executing A Clear Strategy Positioning For Long-Term Competitiveness n Narrowing Price Gap With Discounters n Restructuring Labor Agreements n Reinventing Each Business Process Creating A Superior Retail Offering n Differentiating With Superior Perishables n Moving From Best In Class To Legendary Se
Slide 15: Competitive Pricing Strategy
Competitive Pricing Strategy ? Narrow Price Gap With Discounters Over Time – Lowering Regular Retail Prices – Remaining Promotional ? Finance Price Reductions By: – Restructuring Labor Contracts – Executing Cost Reductions – Driving ID Sales
Slide 16: Labor Cost Gap With Non-Union Competition
Labor Cost Gap With Non-Union Competition Cost Per Hour $12.00 Highest $8.59 Company Average $3.00 Lowest
Slide 17: Run Rate Hourly Savings Vs 2003
Run Rate Hourly Savings Vs 2003 End Of Year 3 11% Current Employees 89% New Hires
Slide 18: Narrowing The Cost Gap
Narrowing The Cost Gap* Southern California Settlement* Health Care 477 SoCal Before 370 Current Empl 104 New Hires 100 Mkt Pension 269 SoCal Before 163 Current 100 New Hires 100 Mkt Wages 170 SoCal Before 156 Current 122 New Hires 100 Mkt *In 2003, Labor Costs Comprised 68% Of Safeway’s Total Opera
Slide 19: Research Analysts Support Labor Strategy
Research Analysts Support Labor Strategy “We continue to believe that SWY (along with ABS and KR) is doing the right thing to address its union labor cost structure in places like Southern California, despite the short-term costs.” - Chuck Cerankosky, McDonald Investments (December 11, 2003) “The [S
Slide 20: Major New Cost Reduction Programs
Major New Cost Reduction Programs Annual Value $Millions $70 Project 1 2004-2005 $65 Project 2 2004-2005 $57 Project 3 2003-2005 $50 Project 4 2004-2005
Slide 21: Differentiate Offering With Quality Perishables
Differentiate Offering With Quality Perishables n Meat Offer The Most Tender And Flavorful Meat n Produce Develop A Reputation For Having The Absolute Best Produce n Deli Operate The Best Delis With A Superior Meals Program n Bakery Operate The Best Supermarket Bakeries n Floral Develop A Floral Rep
Slide 22: Differentiate Offering With Quality Perishables
Differentiate Offering With Quality Perishables n Quality Improvements Result From Better – Merchandising – Product Quality – Selection – In-Store Environment Before After
Slide 23: Differentiate Offering With Quality Perishables
Differentiate Offering With Quality Perishables n And Increased Organic Offering n Better Produce
Slide 24: Showing Early Signs of Success
Showing Early Signs of Success Initial Successes n Consumer Reaction To Store Changes Has Been Overwhelmingly Positive n Sales Results Are Very Encouraging n Costs Of Remodels Are Falling Dramatically New Food Service Items $ Millions $48 2002 $122 2003 $415 2004E $533 2005E *3 Items
Slide 25: Capital Spending
Capital Spending $Billions $1.3 ‘99 $1.6 ‘00 $1.8 ‘01 $1.5 ‘02 $0.9 ‘03 $1.3 ‘04F $1.3 ‘05F $1.3 ‘06F $1.3 ‘07F
Slide 26: Customer Service Leadership 1Q04
Customer Service Leadership 1Q04 Commanding Lead (> 20% Lead) First Place (0-20% Lead) Less Than First Place
Slide 27: Increasing Shareholder Value
Increasing Shareholder Value Safeway ??Differentiated Offering ? Legendary Service Core ??Improved In-Store Experience Reduce Costs - Labor Contracts - Business Processes Narrow Price Gap Increase ID Sales Improve Fixed Cost Leverage Increase EPS & Cash Flow Invest In Operations Create New Jobs Shar
Slide 28: Agenda
Agenda n Committed To Creating Superior Shareholder Returns n Focused On Executing A Strategy To Address The Changing Competitive Environment n Committed To Excellent Corporate Governance
Slide 29: Committed To Excellent Corporate Governance
Committed To Excellent Corporate Governance n Effective Oversight By An Experienced And Invested Board n Active Listening To Our Shareholders n Continuous Improvement Of Our Corporate Governance
Slide 30: Key Actions Already Taken
Key Actions Already Taken Board Issues n Board Will Be Declassified In 2005 (Subject To Shareholder Approval) n Established A 1% Shareholder Director Nomination Process n Adopted Process For Review Of Shareholder Communications To The Board n Installed A Process To Evaluate And Consider Any Sharehol
Slide 31: Key Actions Already Taken
Key Actions Already Taken Board Issues n Enhanced An Existing Code Of Business Conduct & Ethics For Senior Executives n Adopted Corporate Governance Guidelines That Are Posted On Company Website Takover Defenses n Instituted A Policy To Seek Shareholder Ratification If Board Adopts A Poison Pill Aud
Slide 32: Sustaining A Culture Of Good Corporate Governance
Sustaining A Culture Of Good Corporate Governance n Ensuring Board Independence – Seven Of Nine Directors Are Independent By NYSE And Company Definition – Six Of Nine Directors Are Independent By ISS Scoring: “A Substantial Majority Of The Board Members Are Independent Outsiders. We Commend The Comp
Slide 33: Highlights
Highlights n Committed To Creating Superior Shareholder Returns n Focused On Executing A Strategy To Address The Changing Competitive Environment n Committed To Excellent Corporate Governance
Slide 34: Institutional Shareholder Services
Institutional Shareholder Services April 2004
Slide 35: Appendix
SAFEWAY INC. Appendix April 2004