Wm Morrison Supermarkets — FY2006/07 Earnings Presentation
43 slides from Wm Morrison Supermarkets's earnings presentation, Mar 15, 2007
Slide 1: Preliminary Results and Strategic Business Review
Preliminary Results 53 weeks to 4 February 2007 and Strategic Business Review 15 March 2007
Slide 2: Sir Ken Morrison CBE, Chairman
Sir Ken Morrison CBE Chairman Reading
Slide 3: Agenda
Agenda 2 • Introduction – Sir Ken Morrison • Key features 2006/7 – Marc Bolland • Financial and Operational Review – Richard Pennycook • Strategic Business Review – Marc Bolland • Q&A 5
Slide 4: Overview 2006/07
Overview 2006/07 3 • Continuing steady progress – confirmation that the recovery is under way • Recommended final dividend of 3.375p. Total dividend of 4.00p (8.1% increase) • Recruitment of Deputy Chairman progressing well • Competition Commission enquiry continues 5
Slide 5: Marc Bolland, Chief Executive
Marc Bolland Chief Executive Enfield
Slide 6: Key features 2006/7
Key features 2006/7 5 • Market developments • 2006/7 results • Optimisation Plan 5
Slide 7: Richard Pennycook, Group Finance Director
Richard Pennycook Group Finance Director Hawick
Slide 8: Financial summary
Financial summary 7 £m 06/07 05/06 Turnover 12,461.5 12,114.8 Operating profit* 384.7 104.0 Profits on property transactions 38.5 7.5 Exceptional items and goodwill impaired - (374.4) Net debt 772.2 1,147.6 Dividend 4.0p 3.7p Earnings* 8.3p 1.5p *excluding property transactions and exceptional items
Slide 9: Operating profit
Operating profit 8 06/07 05/06 £m % £m % Gross profit 636.0 5.1 321.8 2.7 Other operating income 20.5 0.2 18.5 0.2 Administrative expenses (271.8) (2.2) (236.3) (2.0) Operating profit* 384.7 3.1 104.0 0.9 *excluding property transactions and exceptional items
Slide 10: Turnover bridge
Turnover bridge 9 £m 231 12,462 73 90 12,115 176 483 608 99 2005/06 Disposals Disposals Like for New Fuel price Fuel 53rd week 2006/07 05/06 06/07 like Stores volume
Slide 11: Sales performance
Sales performance 10 Group like for like 53 weeks to 52 weeks to 4 February 07 29 January 06 Sales 6.0% 5.1% Ex fuel 5.2% 2.4% Customers 4.3% 5.3% Other metrics Sales per customer (£) 22.62 22.21 Sales (£ per sq.ft.) 19.57 18.40
Slide 12: Profit bridge
Profit bridge* 11 £m 50 38 76 14 54.0 47 8 10 25 6 2005/06 Disposals New stores LFL stores Pay inflation Energy 53rd week Fuel margin Manuf'g Profit pre optimisation *excluding property profits and exceptional items
Slide 13: Profit bridge
Profit bridge* 12 6m hours target 88 £30m target 330.5 £30 target 22 32 90bps 45 improvement 112 76 Optimisation Initiatives Profit pre Margin Distribution Central costs Store wages Other 2006/07 optimisation costs *excluding property profits and exceptional items
Slide 14: Cash flow
Cash flow 13 £m 06/07 05/06 Cash flow from operations 704.3 311.0 Acquisition costs - (15.6) Proceeds from disposals 158.3 460.2 Capital expenditure (257.3) (635.4) Sale and issue of shares 5.0 18.3 Tax, interest, servicing of finance (109.1) (18.4) Dividends (98.3) (97.8) Cash flow 402.9 22.3
Slide 15: Balance sheet
Balance sheet 14 £m 06/07 05/06 Fixed assets and investments 6,585.8 6,587.0 Working capital (1,688.7) (1,374.6) Pensions deficit (197.9) (416.2) Net debt (772.2) (1,147.6) Net assets 3,927.0 3,648.6 Gearing 20% 31% Interest cover 7.8 - Dividend cover 2.3 -
Slide 16: Performance update
Performance update 15 Group like for like 5 weeks to 53 weeks to 52 weeks to 29 11 March 07 4 February 07 January 06 Sales 2.0% 6.0% 5.1% Ex fuel 3.4% 5.2% 2.4% Customers 1.3% 4.3% 5.3% Other metrics Sales per customer (£) 22.44 22.62 22.21 Sales (£ per sq.ft.) 19.31 19.57 18.40
Slide 17: Marc Bolland, Chief Executive
Marc Bolland Chief Executive Chippenham
Slide 18: Customer perceptions of food retailing
Customer perceptions of food retailing 17 • Supermarkets – Good prices and product development – Large, cold and impersonal – Stressful shopping experience – Limited service – More non food focus than food • Front of mind – Health – Quality – Fresh food – Price – Provenance
Slide 19: Our strengths
Our strengths 18 • Market Street • Great value and offers • Great availability • Great service • National store base • Large freehold ownership • Committed “can do” organisation A sound business
Slide 20: Development areas
Development areas 19 • Inconsistent perception of the brand • Underdeveloped range • Stores too cluttered • Distributions network incomplete • Systems outdated • Organisation has competency gaps Evolution, not revolution
Slide 21: Competitor positioning matrix
Competitor positioning matrix 20 Food High Low Price Price ….we need to sharpen our positioning Non Food
Slide 22: Positioning
Positioning 21 Morrisons will be “food specialist for everyone” Food Specialist We really understand food… We know where it comes from… We are close to farmers… We pack it and make it in our factories… We make it in our stores… We employ craft skills in our stores… For everyone Great food which is a
Slide 23: Revitalising the brand
Revitalising the brand 22 • Brand proposition “Fresh for you everyday” • Brand values Fresh, service and value • Brand identity development Evolution of logo • New communication strategy National and local
Slide 24: In store
In store 23 • Market Street – Contemporary look and feel – Improved visibility of in-store prepared products and craft skills – Packaging for all in-store prepared products • Other packaging development – The Best – Morrisons brand – Bettabuy
Slide 25: In store
In store 24 • Range development – Food range – Non food – Health and Beauty, Home and Leisure • Segmentation – Store size – Demographic – Region – Competition – Ethnicity • Store efficiency initiatives • Investments £180m over 3 years • Margin / efficiency benefits of £150m annually by 2010
Slide 26: Store space
Store space 25 • New sales space - 1m square feet over 3 years • New stores • Extensions
Slide 27: Manufacturing
Manufacturing 26 • Benchmarking confirms – value – shorter lead times • Ensures close control of freshness, quality and provenance • Further investments to add capacity • Investment £70m over 3 years • Savings £15m annually by 2010
Slide 28: Distribution
Distribution 27 • Best grocery lead times in the industry – partly complete • New network planning • 2007 – New facility in South • 2009 – New South East depot – New South West depot • Investment £90m over 3 years • Savings £25m annually by 2010
Slide 29: Illustrative distribution network
Illustrative distribution network 28 Current depot locations Depot locations 2010
Slide 30: Distribution
Distribution 29 • Best grocery lead times in the industry – partly complete • New network planning • 2007 – New facility in South • 2009 – New South East depot – New South West depot • Investment £90m over 3 years • Savings £25m annually by 2010
Slide 31: Environment
Environment 30 KPI 2010 Target Carbon footprint Reduce by 36% Group energy use Reduce by 8% per sq metre Energy from renewable sources 10% Water use Reduce by 15% Waste to landfill Reduce by 50% Own brand packaging Reduce by 15% All timber (inc. 100% of wood Recycled or certified as coming from sust
Slide 32: Other work to do
Other work to do 31 • Organisation – New senior appointments: HR Director, Marketing and Communications Director, Home and Leisure Trading Director – Climate survey improvement steps – Incentive plans – Staff discount • Systems – Core systems adequate for now, but not for the future – Moving from be
Slide 33: Investment requirements
Investment requirements 32 A three year additional programme £m 2007/10 In store 180 Manufacturing 70 Distribution 90 IT 110 Total investment 450 In addition to normal annual capex, including new space, of £400m
Slide 34: Financial goals – optimisation plan
Financial goals – optimisation plan 33 Impact on Operating Profit vs. 05/06 Optimisation Optimisation 1 2 06/07 07/08 07/10 £m £m £m In store efficiency benefits 50 40 50 Manufacturing - 15 Distribution 30 25 Centre 30 10 Gross margin 110 100 Total incremental benefit 220 40 200 total = 460
Slide 35: Capital structure
Capital structure 34 • Continue to favour the flexibility of freehold ownership • Exploring a property partnership for the investment properties • Committed to an investment grade balance sheet • Short term requirements for enhanced capex, bond amortisation and pension funds
Slide 36: Summary
Summary 35 “Strongly improve operating margins ….whilst shaping for growth”
Slide 37: More reasons to shop at Morrisons
MORRISONS More reasons to shop at [MORRISONS|
Slide 38: Supplementary slides
Supplementary slides More reasons to shop at MORRISONS
Slide 39: Profit and loss account
Profit and loss account 38 £m 06/07 05/06 Turnover 12,461.5 12,114.8 Gross profit 636.0 321.8 Other operating income 20.5 18.5 Administrative expenses (271.8) (236.3) Profits on property related transactions 38.5 7.5 Operating profit 423.2 111.5 Net interest expense (54.2) (52.2) Share of joint vent
Slide 40: Exceptional costs
Exceptional costs 39 £m 06/07 05/06 Redundancy - 75.5 Store conversions (inc payroll) - 147.0 Divestments - 11.0 Loss on disposal of fixed assets - 16.7 Impairment of depots to be closed - 21.0 Safeway integration and conversion - 271.2 Goodwill impairment and brand write off - 103.2 Total - 374.4
Slide 41: Movement in net debt
Movement in net debt 40 £m 06/07 05/06 Cash flow 402.9 22.3 Non-cash movements (27.5) (9.0) Total movement 375.3 13.3 Opening net (debt)/cash (1,147.6) (1,160.9) Closing net debt (772.2) (1,147.6)
Slide 42: Stores analysis
Stores analysis 41 Systems Morrisons Group Conversions Estate at 30 January 2006 23 355 378 New openings - 4 4 Conversions (6) 6 - Disposals (11) (3) (14) (17) 7 (10) Estate at 4 February 2007 6 362 368 Total sales area (sq.ft.m) 10.5 Freeholds and long leaseholds 92% Petrol filling stations 278
Slide 43: Profit and loss
Profit and loss 42 06/07 06/07 £m (53 weeks) (52 weeks) Turnover 12,461.5 12,230.5 Gross profit 636.0 624.2 Other operating income 20.5 20.1 Administrative expenses (271.8) (266.3) Profits on property related transactions 38.5 37.8 Operating profit 423.2 415.8 Net interest expense (54.2) (53.2) Shar
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