Wm Morrison Supermarkets — FY2015/16 Earnings Presentation
42 slides from Wm Morrison Supermarkets's earnings presentation, Mar 10, 2016
Slide 1: Preliminary Results, 52 weeks to 31 January 2016
ri call mee 10 March 2016 Preliminary Results 52 weeks to 31 January 2016 Morrisons
Slide 2: Andrew Higginson, Chairman
Andrew Higginson Chairman
Slide 3: David Potts, Chief Executive
David Potts Chief Executive
Slide 4: We set three aims for H2
4 • We set three aims for H2 – Stabilise like for like sales – Recruit the talent to lead the turnaround – Reduce costs and operate at the lower level • To make core supermarkets strong again and turnaround the company – Developed six priorities – Informed by listening to stakeholders – Listening an
Slide 5: Improvements in the last six months informed by listening
5 • Improvements in the last six months have been informed by listening – Lower and consistent prices with simpler promotions – A Morrisons price list - focus on price not claims – Shorter queues, less gaps on shelves • Positive volume trends, stabilising like for like, customer satisfaction ahead o
Slide 6: Six priorities: competitive, serve customers, local solutions
6 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
Slide 7: Building a Morrisons price list
7 • Building a Morrisons price list, saving customers every penny we can • Price Crunch delivering lower prices for customers • Leverage food manufacturing scale • Exclusive Made by Morrisons products • Fewer, more impactful offers, less claims, stronger price points • Simplified Match & More card •
Slide 8: Reducing queues and improving availability
8 • Good progress reducing queues and improving availability • Over 10% more transactions going through the new self scan checkouts • Improving availability and increasing delivery frequency • Customer satisfaction improved and sustained • Significant improvement in queue lengths at Christmas • New
Slide 9: Tailoring the offer locally
9 • A team responsible for local buying, marketing and events • Tailoring the offer - local tastes and demographics • Opportunities for seasonality, ethnicity, affluence and life stage • Fresh Look guided by the communities served by each store • Local solutions driving national benefit
Slide 10: Popular and useful services
10 • A team responsible for new and existing services • Existing services increasingly popular • Working with in-store partners • Car park opportunities • Fuel footfall and volumes increasing • Modernised in-store cafes, 150 more upgrades in 2016
Slide 11: Culture of speed and teamwork; £1bn savings
11 • A culture based on speed and teamwork, clear consistent ways of working • On track to save £1bn in the 3 years to 2016/17 • Difficult choices to create a leaner, efficient, responsive business – Around 800 roles removed from head office – Store closure programme and the sale of the M local chai
Slide 12: Back to Best and Fresh Look programme
12 • Back to Best maintenance programme complete • Maintenance now in house – improving service standards to stores • Fresh Look programme – Upgrade the estate by the end of 2018/19 – Target of 100 Fresh Looks per year – Many improvements can apply across the whole estate – Local customer insight ap
Slide 13: Food maker and shopkeeper
Food maker and shopkeeper ® Morrisons
Slide 14: £50m-£100m opportunity
14 • £50m - £100m opportunity from: – Online – Wholesale – Manufacturing – Popular & useful services – Lower interest • Capital light and returns enhancing
Slide 15: Six priorities summary
15 1. Be more competitive 2. Serve customers better 3. Find local solutions • A Morrisons price list • New self-scan and express • Fresh Look refit programme • Clear prices, not claims checkouts shaped locally • Saving customers every penny • Customer service desks • Offer tailored to each store we
Slide 16: Phases: Fix, Rebuild, Grow
16 PHASE 3: GROW A broader business creating value PHASE 2: REBUILD Six priorities to improve the shopping trip Gain consistency and confidence PHASE 1: FIX Stabilising LFL Improving capability Listening organisation
Slide 17: Trevor Strain, Chief Financial Officer
Trevor Strain Chief Financial Officer
Slide 18: Income statement summary
18 £m 2015/16 2014/15 Turnover 16,122 16,816 Operating profit/(loss) 314 (696) Net finance costs (99) (98) Share of profit from joint ventures 2 2 Profit/(loss) before tax 217 (792) Underlying profit before tax* 242 345 Underlying earnings per share 7.8p 10.9p Net debt 1,746 2,340 Dividend 5.00p 13.
Slide 19: Like-for-like sales and turnover bridge
19 2014/15 2015/16 Like-for-like (ex-VAT) H1 H2 FY H1 H2 FY Group: Sales ex-fuel (7.4)% (4.4)% (5.9)% (2.7)% (1.3)% (2.0)% Sales inc-fuel (7.9)% (6.5)% (7.2)% (6.0)% (2.6)% (4.3)% Supermarkets – excluding online and convenience: Sales ex-fuel (7.8)% (5.3)% (6.5)% (3.7)% (2.3)% (3.0)% Items per baske
Slide 20: Underlying profit bridge
20 £m 423 68 - 75 24 - 373 - 110 - 60 345 413 302 242 2014/15 2014/15 2014/15 Retail like- Cost Productivity Proposition New business 2015/16 Restructuring 2015/16 Underlying One off Underlying for-like headwinds investment development Underlying & store Underlying profit costs profit pre one- profi
Slide 21: Operating profit and margins
21 2015/16 2014/15 £m % £m % Turnover 16,122 16,816 Gross profit 617 3.8 761 4.5 Operating profit 314 1.9 (696) (4.1) Impairment and provisions for onerous contracts 87 0.5 1,273 7.6 Profit on disposal and exit of properties (131) (0.8) (131) (0.8) Loss/(profit) arising on disposal of businesses 34
Slide 22: Cash flow and net debt
22 £m 2015/16 2014/15 Cash flow from operations ex-onerous property payments 1,055 1,044 Onerous property payments (29) (74) Cash flow from operations 1,026 970 Capital expenditure (365) (520) Purchase of own shares (13) (8) Dividends (260) (308) Tax and interest (136) (92) Purchase of shares in sub
Slide 23: Capital allocation priorities
23 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
Slide 24: £50m-£100m incremental profit
24 • £50m – £100m incremental profit from: – Lower interest – Morrisons.com to profit – Wholesale agreements – Income from popular and useful services
Slide 25: Levers to enhance returns
25 Operational levers to enhance returns Capital structure levers to enhance returns Volume Asset Margin Optimise assets Capital returns growth intensity Dividend Profit growth EPS enhancement yield Optimise total shareholder return on basis of robust balance sheet 25
Slide 26: Operational and capital structure levers detail
26 Operational levers to enhance returns Capital structure levers to enhance returns Volume Asset Margin Optimise assets Capital returns growth intensity Volume / Cost / Sale of non core & store LFLs productivity development property Popular and useful services Working capital improvement Lower debt
Slide 27: Appendices
‘Since 1998 Morrisons n T kgs Appendices
Slide 28: Operational KPIs
28 Operational KPIs 2014/15 2015/16 H1 H2 FY H1 H2 FY LFL items per basket %* (4.6) (1.2) (3.0) (0.6) (2.6) (1.6) LFL transactions %* (4.4) (2.6) (3.5) (2.9) (0.2) (1.6) Group like-for-like (ex-VAT) 2014/15 2015/16 H1 H2 FY H1 H2 FY Sales ex-fuel % (7.4) (4.4) (5.9) (2.7) (1.3) (2.0) Sales inc-fuel
Slide 29: Sales by core, closures, convenience, online
29 £m 125 53 - 254 - 112 12,999 12,811 2014/15 Core Closures Convenience Online 2015/16 * excluding fuel and other sales
Slide 30: Underlying profit before tax reconciliation
30 £m 2015/16 2014/15 Reported profit/(loss) before tax 217 (792) Underlying adjustments: – Impairment and provision for onerous contracts 87 1,273 – Profit on disposal and exit of properties (131) (131) – Loss/(profit) arising on disposal of businesses 34 (4) – Pension scheme set-up costs 35 - – Ne
Slide 31: Net finance costs
31 £m 2015/16 2014/15 Interest payable (102) (106) Less: interest capitalised 4 11 (98) (95) Provisions: unwinding of discount (11) (7) Other finance costs (3) (3) (112) (105) Other finance income 13 7 Net finance cost (99) (98)
Slide 32: Balance sheet and key metrics
32 £m 2015/16 2014/15 Fixed assets and investments1 7,775 8,023 Working capital2 (1,710) (1,324) Provisions and tax (749) (726) Net pensions asset / (liability) 186 (39) Net debt (1,746) (2,340) Net assets 3,756 3,594 Key metrics: Interest cover3 4.1x 5.2x Net debt / EBITDA3 2.2 2.6 Gearing 46% 65%
Slide 33: Capital expenditure
33 • Capex £365m, lower than guided due to timing effects • 2016/17 guidance around £450m, as timing effects reverse • From 2017/18, guidance of £400m - £450m per annum unchanged 2015/16 2014/15 £m £m Maintenance and Fresh Look 325 348 New space 26 95 Growth 14 77 365 520
Slide 34: Return on capital employed history
34 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
Slide 35: Underlying profit by half year
35 £m 394 387 384 368 340 319 304 195 199 192 195 190 194 179 189 169 171 151 153 155 164 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 H1 H2 FY
Slide 36: Convenience and supermarket closures
36 Convenience closures Supermarket closures H2 H1 H2 H1 H2 H1 Total 2014/15 2015/16 2015/16 2015/16 2015/16 2016/17 Stores 6 23 130 10 11 7 187 Sq. ft. (000’s) 11 51 345 83 149 111 750 Sales (£m ex-VAT)* 4 22 144 44 86 66 366 * Full year annualised sales
Slide 37: 2016/17 guidance
37 2016/17 Net new space sales -2% to -2.5% Depreciation c.£390m Interest c.£100m Capital expenditure c.£450m Net debt £1.4bn - £1.5bn Underlying tax rate c.25% Onerous capital payments £100m
Slide 38: Net new space sales contribution
38 Net new space sales contribution Net new space sales contribution Weeks 1-4 (2.6)% Weeks 29-32 (2.8)% Weeks 5-8 (2.4)% Weeks 33-36 (2.8)% Weeks 9-12 (2.6)% Weeks 37-40 (1.7)% Weeks 13-16 (2.8)% Weeks 41-44 (0.8)% Weeks 17-20 (2.8)% Weeks 45-48 (0.3)% Weeks 21-24 (2.8)% Weeks 49-52 (0.3)% Weeks 25
Slide 39: 28 store closures; remaining trading stores
39 28 store closures Remaining trading stores
Slide 40: Store estate and sales area
40 Sales area Stores 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 (232) (21) - convenience (396) (153) - reclassified as PFS (2) (1) (630) (175) Estate at 31 Jan
Slide 41: Shareholders, shares in issue and dividends
41 31 January 2016 1 February 2015 Number of shareholders 45,571 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 3.50p 9.62p 9.16p Total 5.00p 13.65p 13.00p Dividend dates Ex dividend 12 May 2016 Record 13 May 2016 Payment 15 June 201
Slide 42: Financial calendar 2016/17
42 2016/17 Date Q1 trading statement 5 May 2016 AGM 9 June 2016 Half year end 31 July 2016 Interim results announcement 15 September 2016 Q3 trading statement 3 November 2016 Christmas trading statement 10 January 2017 Financial year end 29 January 2017 Preliminary results announcement 9 March 2017
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