Wm Morrison Supermarkets — FY2014/15 Earnings Presentation
39 slides from Wm Morrison Supermarkets's earnings presentation, Mar 12, 2015
Slide 1: Preliminary Results
12 March 2015 Preliminary Results 52 weeks to 1 February 2015
Slide 2: Andrew Higginson
Andrew Higginson mt : Chairman Rx | —
Slide 3: Trevor Strain
Trevor Strain Chief Financial Officer
Slide 4: Overview
Overview • Making good progress on all key Like-for-like items per basket 0% elements of our plan – delivering £1bn cost savings programme -4% ahead of plan – investing in our customer proposition -8% Q4 Q1 Q2 Q3 Q4 – over £1bn improvement in cash flow 2013/14 2014/15 2014/15 2014/15 2014/15 year-on
Slide 5: We are generating £1bn over the next three years to reinvest
We are generating £1bn over the next three years to reinvest Sources • 1 Improved end-to-end operations • 2 Indirect procurement and loss prevention • 3 Promotional investment and improved sourcing Uses • 1 Invest in core proposition • 2 Trading & structural cost headwinds • 3 Earnings growth 4
Slide 6: Delivered £224m of savings in year one
Delivered £224m of savings in year one Sources • Improving end-to-end operations Further progress on SKU reductions – £70m delivered in 2014/15 24,500 • simpler structures 23,600 • greater use of manufacturing • sales-based ordering on track 22,400 22,150 21,950 – on track to deliver £300m over thre
Slide 7: Good progress on key areas of our customer proposition
Good progress on key areas of our customer proposition Uses • Lowering our prices Ongoing lower prices & greater stability – ongoing price reductions throughout the year Q2-Q4 2014/15 price changes • Launched our Match & More card 7,000 Price increases • More still to do Price – fewer, better promot
Slide 8: New channels
New channels • Online – delivering c.£200m annualised sales – covering nearly 50% of UK households – achieving industry-leading operational metrics • Convenience – second year growth below our expectations – rollout to be slowed significantly, reviewing M local proposition and site selection criteri
Slide 9: Financial summary
Financial summary £m 2014/15 2013/14 Turnover 16,816 17,680 5% Operating loss (696) (95) Net finance costs (98) (82) Share of profits from joint ventures 2 1 Loss before tax (792) (176) Underlying profit before tax* 345 719 52% Underlying earnings per share 10.9p 23.1p Net debt 2,340 2,817 Dividend
Slide 10: Turnover bridge
Turnover bridge £m 19,000 360 18,000 17,000 - 795 - 408 - 21 16,000 17,680 15,000 16,816 14,000 13,000 2013/14 New stores Like-for-like Fuel Other 2014/15 9
Slide 11: Turnover bridge - sales by channel
Turnover bridge - sales by channel* £m 14,000 113 83 13,000 - 631 13,434 12,000 12,999 11,000 2013/14 Core Convenience Online 2014/15 * excluding fuel 10
Slide 12: Sales performance
Sales performance Like-for-like (ex-VAT) Q1 Q2 Q3 Q4 H1 H2 FY Group: Sales inc-fuel (8.2)% (7.5)% (8.0)% (5.1)% (7.9)% (6.5)% (7.2)% Sales ex-fuel (7.1)% (7.6)% (6.3)% (2.6)% (7.4)% (4.4)% (5.9)% Supermarkets – excluding online and convenience: Sales ex-fuel (7.4)% (7.9)% (7.0)% (3.6)% (7.8)% (5.3)%
Slide 13: Underlying profit bridge
Underlying profit bridge* £m 20 224 - 66 - 136 - 94 785 - 315 719 - 68 -5 345 2013/14 2013/14 New 2013/14 New space Retail Cost Productivity Proposition One-off costs New 2014/15 Underlying business Underlying like-for-like headwinds investment business Underlying profit development profit developme
Slide 14: Underlying earnings
Underlying earnings £m 2014/15 2013/14 Reported loss before tax (792) (176) Underlying adjustments: – impairment and onerous provisions 1,273 903 – profit arising on property transactions (131) (9) – profit arising on disposal of Kiddicare (4) - – net pension interest (income)/cost (1) 1 Underlying
Slide 15: Operating profit
Operating profit 2014/15 2013/14 £m % £m % Turnover 16,816 17,680 - Gross profit 761 4.5% 1,074 6.1% Other operating income 78 0.5% 81 0.5% Administrative expenses (397) (2.4)% (356) (2.0)% Impairment and onerous lease provisions (1,273) (7.6)% (903) (5.1)% Profit arising on property transactions 13
Slide 16: Cash flow
Cash flow £m 2014/15 2013/14 Cash flow generated from operations* 1,044 1,031 Onerous property payments (74) - Cash flow generated from operations 970 1,031 Capital expenditure (520) (1,020) Investment in joint venture - (66) Purchase of own shares (8) (53) Proceeds from issue of shares - 28 Dividen
Slide 17: Good progress on cash improvement streams
Good progress on cash improvement streams • Working capital – working capital improvement of £289m • includes £74m of onerous property payments • includes £157m for impairment and onerous leases – underlying improvement of £206m after absorbing significant headwinds – depot stock cover four days low
Slide 18: Balance sheet
Balance sheet £m 2014/15 2013/14 Fixed assets and investments1 8,023 9,299 Working capital2 (1,324) (1,104) Provisions and tax (726) (675) Net pensions liability (39) (11) Net debt (2,340) (2,817) Net assets 3,594 4,692 Key metrics: Interest cover3 5.2x 10.0x Net debt / EBITDA3 2.6 2.4 Gearing 65% 6
Slide 19: Capital allocation framework
Capital allocation framework Investing in maintaining estate and 1 reducing cost Maintaining debt ratios to 2 support investment grade rating 3 Investing for profitable growth 4 Paying dividends in line with stated policy 5 Returning surplus capital to shareholders 18
Slide 20: Improved funding profile
Improved funding profile • £300m 15-year sterling bond successfully issued • RCF facility extended • Three-year debt maturities fallen to £350m from £2bn over last 12 months • Committed facilities headroom of over £1.1bn 1,350 156 585 400 400 300 150 200 200 2015 2016 2017 2018 2019 2020 2021 2022 2
Slide 21: Impairment
Impairment • Store-by-store impairment review, £1,273m charge in the year • Key drivers of the charge are: – a change in forward-looking assumptions; lower expectations of performance and higher discount rate – a prudent assessment of market value 20
Slide 22: Property - supermarket closures
Property - supermarket closures • Last year we said: – we are committed to a quarterly asset review – we have some underperforming stores – we wanted to give underperforming stores time with a reshaped proposition/operating model • Plan to close 10 supermarkets – total sales area 83k sq. ft. – annua
Slide 23: Enhanced disclosure
Enhanced disclosure • Commercial income – industry context around commercial income has changed – appropriate to provide new disclosure – little subjectivity or judgement – comprises marketing contributions and volume-based rebates – full income statement and balance sheet disclosure • Depreciation
Slide 24: Summary
Summary • Met guidance on underlying profit, debt reduction, working capital and cost savings • We have many strengths • Focus on the customer and our core supermarkets 23
Slide 25: APPENDICES
APPENDICES
Slide 26: Operational KPIs and sales performance
Operational KPIs and sales performance Operational KPIs 2013/14 2014/15 Q4 Q1 Q2 Q3 Q4 H1 H2 FY LFL items per basket %* (6.9) (5.9) (3.2) (2.4) (0.1) (4.6) (1.2) (3.0) LFL transactions %* (1.4) (3.6) (5.0) (3.3) (1.9) (4.4) (2.6) (3.5) Number of SKUs 24,500 23,600 22,400 22,150 21,950 22,400 21,950
Slide 27: PBT bridge
PBT bridge £m 131 4 1 345 -792 -1,273 2014/15 Property Kiddicare IAS 19 Pension Impairment 2014/15 Loss Underlying disposal before tax profit before tax profits 26
Slide 28: Finance costs
Finance costs £m 2014/15 2013/14 Interest payable (106) (98) Less: interest capitalised 11 17 (95) (81) Interest receivable 5 3 Other finance cost (10) (5) (100) (83) Net pensions income / (expense) 1 (1) Amortisation of bonds 1 2 Net finance cost (98) (82) 27
Slide 29: Return on capital employed (ROCE)
Return on capital employed (ROCE) 10.3% 10.4% 10.4% 9.8% 8.2% 5.6% 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Prior years restated for 14x multiplier of lease commitments and adjusted for the change in underlying earnings definition 28
Slide 30: Depreciation
Depreciation £m 394 387 368 340 319 304 195 199 192 195 169 171 179 189 151 153 155 164 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 H1 H2 FY 29
Slide 31: Sales area and store numbers
Sales area and store numbers Stores Sales area (000’s sq. ft.) Number Estate at 2 February 2014 - supermarket 13,976 503 - convenience 257 102 14,233 605 New openings* - supermarket 356 11 ` - convenience 154 57 510 68 Closures - supermarket - - - convenience (11) (6) (11) (6) Estate at 1 February 2
Slide 32: Supplementary financials
Supplementary financials 1 February 2015 2 February 2014 Number of shareholders 47,955 48,347 Number of shares in issue (m) 2,335 2,335 Dividend 2014/15 2013/14 2012/13 Interim 4.03p 3.84p 3.49p Final 9.62p 9.16p 8.31p Total 13.65p 13.0p 11.8p Dividend dates – FY 2014/15 Ex dividend 7 May 2015 Recor
Slide 33: 2014/15 capital expenditure
2014/15 capital expenditure £m Build 95 Refresh & Maintenance 348 Growth - Online 17 - Convenience 55 - Manufacturing 5 77 Total 520 32
Slide 34: 2015/16 guidance
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% 33
Slide 35: Financial calendar
Financial calendar 2015/16 Date Q1 IMS 7 May 2015 AGM 4 June 2015 Half year end 30 August 2015 Interim results announcement 10 September 2015 Q3 IMS 5 November 2015 Christmas trading statement To be confirmed Financial year end 31 January 2016 34
Slide 36: Meet the team: Directors
Meet the team: Directors Andrew Higginson Chairman Andrew joined the Group as Deputy Chairman and Chairman Elect in October 2014 and became Chairman in January 2015. Andrew is currently the Chairman of N Brown Group Plc, a Non-Executive Director of Woolworth Holdings Limited (South Africa), McCurrac
Slide 37: Meet the team: Directors
Meet the team: Directors 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. Philip is a Non- Executive Director and Chairman Elect of Drax Group Pl
Slide 38: Meet the team: Management Board
Meet the team: Management Board David Potts Trevor Strain Chief Executive Chief Financial Officer See Board of Directors See Board of Directors Mark Amsden Neal Austin Group General Counsel and Company Secretary Group Logistics and Supply Chain Director Mark is a qualified lawyer who joined the Grou
Slide 39: Meet the team: Management Board
Meet the team: Management Board Mark Harrison Martyn Jones Group Supply Chain and Projects Director Group Corporate Services Director Mark joined the Management Board in October 2010 and in Martyn was appointed to the Management Board in October 2010 January 2015 was appointed as Group Supply Chain
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