Wm Morrison Supermarkets — H1 2015/16 Earnings Presentation
49 slides from Wm Morrison Supermarkets's earnings presentation, Sep 10, 2015
Slide 1: Interim Results, 26 weeks to 2 August 2015
10 September 2015 = Interim Results ae 26 weeks to 2 August 2015
Slide 2: Andrew Higginson, Chairman
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Slide 3: David Potts, Chief Executive
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Slide 4: Stabilise trading and lower costs
• Stabilise trading • Slow down market share loss and scale of negative like-for-likes • Lower costs • Identify talent to improve performance – Clare Grainger promoted to People Director – Darren Blackhurst joined as Commercial Director and Gary Mills as Retail Director – Smaller Executive team – Ho
Slide 5: Learning how to listen hard
• Customers Learning how to listen hard Over 200,000 responses in just 4 weeks • Colleagues 6,000 comments received from customers every week • Suppliers Partnership with suppliers • Shareholders Alignment with shareholders 5
Slide 6: Affection for the Morrisons brand and strong heritage
• Affection for the Morrisons brand • British grocer with strong heritage • Market Street and strong fresh food manufacturing business Market Street • Unrivalled provenance and capacity • Passionate colleagues Doughnuts Made Fresh In-store Business underpinned by: • Strong cash flow • Improving bala
Slide 7: Fresh, value for money and service
• Fresh, value for money and service • Availability on everyday items and special offers • Improve range and product choice • Sharpen prices Sharpen Pricing • Colleagues - everyone’s welcome • Partnership with suppliers • Sustainable growth • Higher return on capital Impactful Offers 7
Slide 8: Improve LFL sales, rebuild profits, improve return on capital
1. Improve like-for-like sales performance – Volume growth – More customers 2. Rebuild profits – Positive operating leverage – Margin rebuild over time Maximise returns for all stakeholders 3. Improve Return on Capital – Capital returns – Underperforming assets 4. Cash flow – Continue to generate ca
Slide 9: Be more competitive and serve customers better
1 To be more competitive 2 To serve customers better 3 Find local solutions 4 Develop popular and useful services 5 To simplify and speed up the organisation 6 To make the core supermarkets strong again 9
Slide 10: Morrisons is a value retailer
• Morrisons is a value retailer • Investing in the proposition: — Simpler pricing — Compelling, easy to understand offers — Better communication for an easier shopping trip June Everyday Items Compelling Offers • Vertical integration is a cornerstone — Provenance — “Made by Morrisons” — Caring about
Slide 11: Additional in-store staff and improved availability
• 5,000 additional staff in-store • Rescheduling to the busiest times • Remove wasted effort • Improve availability New Wine Layout • Express tills • New self scan checkouts • Adjacency & signage of produce • Country of origin wine Customer Satisfaction 11
Slide 12: Opportunity to improve store by store
• Opportunity to improve store-by-store • Localised customer offer • Become more relevant and successful • Make every square foot work harder • Opportunities include: – Ethnicity – Affluence – Price sensitivity – Population density • Local opportunities to increase national sales and profit 12
Slide 13: Adding further in-store services
• Morrisons reputation for good service — 400 cafés — 140 dry cleaners — 120 pharmacies — 330 fuel stations • Add further services - more reasons to visit Morrisons Dry Cleaning • Future pilots considered • Capital-light and enhancing to return on capital In-store Pharmacy 13
Slide 14: Lean, efficient head office
• Lean, efficient and effective head office • Head office consultation complete — 720 roles being removed — 2,000 people from a peak of 3,500 — Leadership team reduced from 110 to 65 — Greater accountability • Encouraging store managers to trade their stores harder 14
Slide 15: Fresh Look store investment
• Refine our identity – good quality, great value food, customer service, British • Fresh Look programme of investment in stores — 200 stores not brightened-up in over 5 years — Entire store estate upgraded by the end of 2018 Skilled Market Street Colleagues — Informed by listening programme, local
Slide 16: Cash generative, lower debt
• Cash generative • Working capital • Property disposals • 80%-plus freehold store portfolio • Lower debt • Lower sustainable capex 16
Slide 17: Optimise assets
• Optimise assets • Top stores are well spread • Disciplined review of invested capital site by site • Consultation to close 11 stores announced today Top 20 Turnover Stores In England and Wales • New store pipeline reduced • Considering buying freeholds where lease is unattractive • Selling 140 M l
Slide 18: Saving to invest in our customers
• Saving to invest in our customers • Careful review and re-prioritising — Head office restructure — Pension scheme harmonisation — New self scan checkouts — Improve on-shelf availability through better process New Self Scan Checkout — Stop roll-out of sales based ordering • Productivity improvement
Slide 19: Following the customer as digital grows
• We must follow the customer as digital grows Customer Metrics On time delivery 95.6% • Online offers opportunity to expand brand presence Missing items and 0.4% substitutions • Not in North East, South West, Scotland Range >17,000 SKUs Active customers >130,000 • No click and collect, store pick,
Slide 20: Summary of turnaround focus
• Focus is on stabilising trade, reducing costs, simplify and speed up • Strengthening capability of leadership team • Developing a practical turnaround plan • Some strategy components under careful review • Turnaround built on balance sheet, colleagues and building brand trust • Turnaround success
Slide 21: Financial review
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Slide 22: Operational and capital structure levers to enhance returns
Operational levers to enhance returns Capital structure levers to enhance returns Volume Asset Underperforming Margin Capital returns growth intensity assets Dividend Profit growth EPS enhancement yield Optimise total shareholder return on basis of robust balance sheet 22
Slide 23: Financial summary
£m 2015/16 2014/15 Turnover 8,064 8,496 Operating profit 172 287 Net finance costs (47) (49) Share of profits from joint ventures 1 1 Profit before tax 126 239 Underlying profit before tax* 117 181 Underlying earnings per share 3.73p 5.74p Net debt 2,086 2,608 Dividend 1.50p 4.03p * Underlying profi
Slide 24: Like-for-like sales and turnover bridge
2014/15 2015/16 Like-for-like (ex-VAT) H1 FY Q1 Q2 H1 Group: Sales ex-fuel (7.4)% (5.9)% (2.9)% (2.4)% (2.7)% Sales inc-fuel (7.9)% (7.2)% (6.6)% (5.4)% (6.0)% Supermarkets – excluding online and convenience: Sales ex-fuel (7.8)% (6.5)% (3.9)% (3.4)% (3.7)% Items per basket (4.6)% (3.0)% (0.1)% (1.1
Slide 25: Underlying profit before tax bridge
£m 189 35 -44 8 - 47 - 181 - 24 181 216 141 117 * Underlying profit before tax includes new business development and restructuring costs, but excludes profit / loss relating to property disposals and sale of businesses, IAS 19 pension interest, impairment and provision for onerous contracts. 25
Slide 26: Reported to underlying profit before tax
£m 2015/16 2014/15 Reported profit before tax 126 239 Underlying adjustments: – Impairment and provision for onerous contracts 87 - – Profit on disposal and exit of properties (96) (54) Net profit on property (9) (54) – Profit arising on disposal of Kiddicare - (4) – Net pension interest (income)/co
Slide 27: Operating profit
2015/16 2014/15 £m % £m % Turnover 8,064 - 8,496 - Gross profit 311 3.9 396 4.7 Other operating income 34 0.4 39 0.5 Administrative expenses (182) (2.3) (206) (2.4) Net profit on property 9 0.1 58 0.7 Operating profit 172 2.1 287 3.4 Net profit on property (9) (0.1) (58) (0.7) Underlying operating p
Slide 28: Cash flow
£m 2015/16 2014/15 Cash flow generated from operations 488 575 Onerous property payments (17) (24) Cash flow generated from operations 471 551 Capital expenditure (139) (257) Purchase of own shares - (8) Dividends (225) (214) Tax and interest (43) (84) (407) (563) Cash flow pre-disposals 64 (12) Pro
Slide 29: Capital expenditure
• All components of capex lower year-on-year in first half • Maintenance capex is around £330m • 2015/16 guidance of £400m confirmed • Core supermarkets capex for 2016/17 and beyond £400m - £450m 2015/16E 2014/15 £m £m Maintenance and Fresh Look 330 348 New space 24 95 Growth 46 77 400 520 29
Slide 30: Free cash flow target and debt
• Achieved £1.3bn so far of the £2bn free cash flow target for the 3 years to January 2017 – £629m property disposals achieved of the £1bn target – £331m achieved of the £600m working capital target • Debt falling – Already within the £1.9bn - £2.1bn full year target range – More progress to come •
Slide 31: Convenience store sale and store closures
• Recently announced sale of 140 M local convenience stores • Reviewing supermarket estate, proposed closure of 11 additional stores, £20m one off cost • Expect net new sales contribution to be negative for 2016/17 • Ongoing rigorous capital discipline 21 store closures Remaining trading stores EBIT
Slide 32: Profit before tax H1 and H2 expectations
H1 H2E £m 2015/16 2015/16 Reported profit before tax 126 Underlying adjustments: – Impairment and provision for onerous contracts 87 – Profit on disposal and exit of properties (96) – Disposal of 140 M local stores c.30 – Pension charge 35 Underlying profit before tax* 117 > H1 – Head office restruc
Slide 33: Summary: costs, cash and balance sheet
• Unrelenting focus on costs, cash, working capital and underperforming assets • Reducing debt and strengthening the balance sheet • Simplify to speed up and be more responsive • Extra scope to invest in proposition • Rebuild will require sustained investment • Operational and capital levers to maxi
Slide 34: Appendices
Slide 35: Operational KPIs
Operational KPIs 2014/15 2015/16 Q1 Q2 H1 H2 FY Q1 Q2 H1 LFL items per basket %* (5.9) (3.2) (4.6) (1.2) (3.0) (0.1) (1.1) (0.6) LFL transactions %* (3.6) (5.0) (4.4) (2.6) (3.5) (3.2) (2.6) (2.9) Group like-for-like (ex-VAT) 2014/15 2015/16 Q1 Q2 H1 H2 FY Q1 Q2 H1 Sales inc-fuel % (8.2) (7.5) (7.9)
Slide 36: Sales by channel
£m 37 63 - 169 6,457 6,388 2014/15 Core Convenience Online 2015/16 * excluding fuel 36
Slide 37: Net finance costs
£m 2015/16 2014/15 Interest payable (49) (51) Less: interest capitalised 3 5 (46) (46) Provisions: unwinding of discount (5) (3) Other finance costs (1) - (52) (49) Other finance income 5 - Net finance cost (47) (49) 37
Slide 38: Balance sheet
£m 2015/16 2014/15 Fixed assets and investments1 7,883 9,118 Working capital2 (1,469) (1,162) Provisions and tax (802) (661) Net pensions asset / (liability) 13 (5) Net debt (2,086) (2,608) Net assets 3,539 4,682 Key metrics: Interest cover3 4.5x 6.6x Net debt / EBITDA3 2.6 2.5 Gearing 59% 56% ROCE
Slide 39: Capital allocation priorities
1 Investing in maintaining estate and reducing cost 2 Maintaining debt ratios to support investment grade rating 3 Investing for profitable growth 4 Paying dividends in line with stated policy 5 Returning surplus capital to shareholders 39
Slide 40: Return on capital employed
10.3% 10.4% 10.4% 9.8% 8.2% 5.6% 5.3% 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 * * Half year figures on rolling 12 month basis Prior years restated for 14x multiplier of lease commitments and adjusted for the change in underlying earnings definition 40
Slide 41: Depreciation
£m 394 c.400* 387 368 340 319 304 c.210 195 199 192 195 190 169 171 179 189 151 153 155 164 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 H1 H2 FY * Guidance 41
Slide 42: Store closures
Convenience closures Supermarket closures H2 H1 Announced H1 H2 Total 2014/15 2015/16 09/09/15** 2015/16 2015/16 Stores 6 23 130 10 11 180 Sq. ft. (000’s) 11 51 339 83 149 633 Sales (£m ex-VAT)* 4 22 144 44 86 300 * Full year annualised sales ** Excludes 10 stores previously closed in H1 42
Slide 43: 2015/16 guidance
2015/16 New space sales 1.0% - 1.5%* Depreciation c.£400m Interest £100m - £105m Capital expenditure c.£400m Net debt £1.9bn - £2.1bn Underlying tax rate c.25% * c.0.5% after proposed closure of supermarkets and sale of 140 M local stores 43
Slide 44: Store estate
Stores Sales area Number (000s sq. ft) Estate at 1 February 2015 - supermarket 14,332 514 - convenience 400 153 14,732 667 New openings - supermarket 26 1 ` - convenience 14 5 40 6 Closures - supermarket (83) (10) - convenience (51) (23) (134) (33) Estate at 2 August 2015 - supermarket 14,275 505 -
Slide 45: Shareholders and dividends
2 August 2015 1 February 2015 Number of shareholders 46,555 47,955 Number of shares in issue (m) 2,335 2,335 Dividend 2015/16 2014/15 2013/14 Interim 1.50p 4.03p 3.84p Final 9.62p 9.16p Total 13.65p 13.0p Dividend dates Ex dividend 1 October 2015 Record 2 October 2015 Payment 9 November 2015 45
Slide 46: Financial calendar
2015/16 Date Q3 trading statement 5 November 2015 Christmas trading statement 12 January 2016 Financial year end 31 January 2016 Preliminary results announcement 10 March 2016 46
Slide 47: Board: Andrew Higginson and David Potts
Andrew Higginson Chairman Andrew joined the Group as Deputy Chairman and Chairman Elect in October 2014 and became Chairman in January 2015. He is a member of the Nomination, Remuneration and Corporate Compliance and Responsibility Committees. Andrew is currently the Chairman of N Brown Group Plc, a
Slide 48: Board: Philip Cox and Penny Hughes
Philip Cox CBE Senior Independent Director and Chair of Audit Committee Philip joined the Group as a Non-Executive Director in April 2009. He was appointed as the Senior Independent Director in May 2013 and he is a member of Audit, Nomination, Remuneration and Corporate Compliance and Responsibility
Slide 49: Executive team
David Potts Trevor Strain Chief Executive Chief Financial Officer See Directors See Directors Clare Grainger Gary Mills Group People Director Group Retail Director Clare was appointed to People Director on 1 September 2015. She has Gary joined Morrisons in August 2015 as Group Retail Director. He ha
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