Wm Morrison Supermarkets — H1 2016/17 Earnings Presentation
45 slides from Wm Morrison Supermarkets's earnings presentation, Sep 15, 2016
Slide 1: Interim Results
15 September 2016 Interim Results 26 weeks to 31 July 2016
Slide 2: Andrew Higginson, Chairman
Andrew Higginson Chairman 2
Slide 3: David Potts, CEO
David Potts CEO 3
Slide 4: Progress on priorities
Progress on priorities • A three phase recovery – Fix, Rebuild and Grow LFL Sales, Ex Fuel, Ex VAT • During Fix: – Stabilise like-for-like sales – Improve capability 0.1% 0.7% 2.0% – Operate at lower cost -2.9% -2.4% -2.6% • The turnaround journey: – Rebuild profitability – Improve Return on Investe
Slide 5: The first half
The first half • Positive and improving like-for-like sales Supermarkets LFL Volumes* 2.4% 2.2% 2.3% Supermarkets LFL Transactions 4.3% 3.1% • Underlying profit up 11% 1.6% 0.1% • Improving performance: -0.6% – Volume -2.6% -2.0% – Transactions Q1 Q2 Q3 -1.4% Q4 Q1 Q2 -3.2% Q1 Q2 Q3 Q4 Q1 Q2 – Custo
Slide 6: Six priorities
Six priorities 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 6
Slide 7: Be more competitive
Be more competitive • Saving our customers every penny we can • Journey towards the Morrisons price list • Notch up in quality, notch down in price • ‘Morrisons Makes It’ Award Winning Wines • Meat and Fish Retailer of the Year • International Wine Challenge Supermarket of the Year • Launch of ‘The
Slide 8: Serve customers better
Serve customers better • Customer satisfaction improvement sustained • Improved checkout service • 200 new customer service desks • Transactions up 4.3% in Q2 • 10% increase in the use of the loyalty card TV Commercial - Service 200 New Customer Service Desks Morrisons More Card 8
Slide 9: Find local solutions
Find local solutions • Local solutions driving national benefit • Opportunities at national, regional, local and store level • Regional teams improving ranging, events and communication • Fresh Look benefits whole estate and store by store • Reduced impact of competitor openings Halal Meat Counter Y
Slide 10: Develop popular and useful services
Develop popular and useful services • Competitive on fuel, volumes strong • Modernised 80 cafés, 130 by year end • Improved café menu and offer Father’s Day Café Event New Market Street Café • Timpson at Morrisons • Pick up services: Amazon lockers, InPost and Doddle • Convenience trials: franchise
Slide 11: Simplify and speed up
Simplify and speed up • A culture based on teamwork, consistent ways of working and customers first • Improved field and leadership team structure and capability • Simplifying relationships with suppliers • Productivity: – Belted self-scan checkouts introduced into 140 stores – Head office savings •
Slide 12: Make core supermarkets strong again
Make core supermarkets strong again • Maintenance moved in-house • Fresh Look on track for 100 stores this year • Food makers becoming more visible to customers • ‘Good to Know it’s Morrisons’ • Market Street truly valued by customers Fresh Look Market Street Food Making Butchers Block 12
Slide 13: Progress on the six priorities
Progress on the six priorities 1. Be more competitive 2. Serve customers better 3. Find local solutions • The Morrisons price list • New self-scan & express checkouts • Local solutions, national benefit • Clear prices, not claims • New customer service desks • Fresh Look local programme • Saving cus
Slide 14: 3 phases of the journey
3 phases of the journey 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 Operate at lower cost 14
Slide 15: Second half aims
Second half aims • Improving capability • Improve processes, foster teamwork, removing wasted effort and reduce cost • Improving technology and data • Visible working, especially on Market Street • Strengthening trade plan 15
Slide 16: Trevor Strain, CFO
Trevor Strain CFO 16
Slide 17: Financial summary
Financial summary £m H1 2016/17 H1 2015/16 Turnover 8,032 8,064 Operating profit 224 172 Net finance costs (81) (47) Share of profit from joint ventures - 1 Profit before tax 143 126 Underlying profit before tax* 157 117 Underlying profit before tax adjusted for 2015/16 restructuring costs 157 141 1
Slide 18: Turnover
Turnover 2015/16 2016/17 Like-for-like (ex-VAT) H1 FY Q1 Q2 H1 Group: Sales ex-fuel (2.7)% (2.0)% 0.7% 2.0% 1.4% Sales inc-fuel (6.0)% (4.3)% 1.2% 2.4% 1.8% Supermarkets – excluding online and convenience Sales ex-fuel (3.7)% (3.0)% (0.3)% 0.9% 0.3% Items per basket (0.6)% (1.6)% (2.8)% (5.0)% (3.9)
Slide 19: Profit
Profit H1 2016/17 H1 2015/16 £m % £m % Turnover 8,032 - 8,064 - Gross profit 305 3.8 311 3.9 Operating profit 224 2.8 172 2.1 Impairment and provisions for onerous contracts - - 87 1.1 Profit on disposal and exit of properties (17) (0.2) (96) (1.2) Underlying operating profit* 207 2.6 163 2.0 Restru
Slide 20: Underlying adjustments
Underlying adjustments £m Cash Non cash Total Profit on disposal and exit of properties 17 - 17 USPP make whole payment (17) - (17) Financing charges relating to debt repayment (8) (1) (9) Reclassification from cash flow hedge reserve - (9) (9) Net pension interest income - 4 4 Total (8) (6) (14) 20
Slide 21: Cash flow
Cash flow £m H1 2016/17 H1 2015/16 Cash flow from operations ex-onerous capital payments 735 488 Capital expenditure (163) (139) Tax and interest (41) (43) 531 306 Onerous capital payments (27) (17) Purchase of own shares (2) - Dividends (81) (225) Costs incurred on repayment of borrowings (25) - (1
Slide 22: Cash and debt
Cash and debt £m Change in Net Debt (636) 477 477 594 2013/14 2014/15 2015/16 2016/17 H1 Net debt: £2,817m £2,340m £1,746m £1,269m 22
Slide 23: Cash and debt
Cash and debt £m Free Cash Flow (pre capital return) 854 785 558 (300) 2013/14 2014/15 2015/16 2016/17 H1 23
Slide 24: Cash and debt
Cash and debt £m Free Cash Flow (before capital returns, property disposal proceeds, working capital and onerous capital payments) 215 212 203 (101) 2013/14 2014/15 2015/16 2016/17 H1 24
Slide 25: Cash improvement programmes
Cash improvement programmes • Unrelenting focus on cash and working capital firmly embedded • Property disposal proceeds of £55m in the first half, c.£850m achieved so far • Fresh Direct stake sold for £45m, a premium of £14m • Working capital generation of £318m, exceeding expectations: – More comp
Slide 26: Balance sheet
Balance sheet • Early redemption of $250m USPP • Tender offer, £152m across three bonds • Strong maturity profile, RCF extended to 2021 • Acquisition of 3 freeholds since the half year 26
Slide 27: Changes to how we will report
Changes to how we will report • Headline like-for-like to include all other sales: – Manufacturing sales to third parties – Commission – Franchise – Wholesale • ROCE, reviewing lease multiplier 27
Slide 28: Capital allocation
Capital allocation 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 28
Slide 29: The plan
The plan Operational levers to enhance returns Capital structure levers to enhance returns Volume Asset growth Margin Optimise assets Capital returns intensity Dividend Profit growth EPS enhancement yield Optimise total shareholder return on basis of robust balance sheet 29
Slide 30: Appendices
Morrisons Since 1899 Appendices
Slide 31: Operational KPIs and sales performance
Operational KPIs and sales performance 2015/16 2016/17 Operational KPIs Q1 Q2 H1 H2 FY Q1 Q2 H1 LFL items per basket %* (0.1) (1.1) (0.6) (2.6) (1.6) (2.8) (5.0) (3.9) LFL transactions %* (3.2) (2.6) (2.9) (0.2) (1.6) 3.1 4.3 3.7 2015/16 2016/17 Like-for-like (ex-VAT) Q1 Q2 H1 H2 FY Q1 Q2 H1 Sales e
Slide 32: Turnover bridge – sales by channel
Turnover bridge – sales by channel* £m 30 (69) 66 6,388 (113) 6,302 2015/16 Core Closures Convenience Online 2016/17 * Excluding fuel and other sales 32
Slide 33: Underlying earnings
Underlying earnings £m H1 2016/17 H1 2015/16 Reported profit before tax 143 126 Underlying adjustments: – Impairment and provision for onerous contracts - 87 – Profit on disposal and exit of properties (17) (96) – Costs associated with the repayment of borrowings 35 - – Net pension interest income (
Slide 34: Underlying EPS
Underlying EPS £m H1 2016/17 H1 2015/16 Underlying profit before tax* 157 117 Underlying tax at 25% (2015/16: 25%) (39) (30) Underlying profit after tax 118 87 Weighted average number of shares (m) 2,331 2,333 Underlying EPS* 5.04p 3.73p Dividend 1.58p 1.50p * Underlying profit before tax and underl
Slide 35: Finance costs
Finance costs £m H1 2016/17 H1 2015/16 Interest payable (47) (51) Less: interest capitalised - 3 (47) (48) Provisions: unwinding of discount (6) (5) Other finance costs (1) (1) (54) (54) Other finance income 4 7 Underlying net finance costs (50) (47) Costs associated with repayment of borrowings (35
Slide 36: Balance sheet
Balance sheet £m H1 2016/17 H1 2015/16 Fixed assets and investments1 7,709 7,883 Working capital2 (2,006) (1,469) Provisions and tax (801) (802) Net pensions asset 249 13 Net debt (1,269) (2,086) Net assets 3,882 3,539 Key metrics: Interest cover3 4.1x 4.5x Net debt / EBITDA 1.4 2.6 Gearing 33% 59%
Slide 37: Return on capital employed (ROCE)
Return on capital employed (ROCE) 10.3% 10.4% 10.4% 9.8% 8.2% 6.2% 5.6% 5.3% 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17* * Half year figure on rolling 12 month basis 37
Slide 38: Depreciation and amortisation
Depreciation and amortisation £m 394 c.400* 387 384 368 340 195 199 192 195 190 194 198 c.202* 189 171 179 169 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 H1 H2 FY * Guidance 38
Slide 39: Funding profile
Funding profile* £m 1350 489 365 384 300 200 200 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2029 RCF Sterling bond Euro bond * Notional value of facilities 39
Slide 40: 2016/17 guidance
2016/17 guidance 2016/17 Net new space sales -2% to -2.5% Depreciation c.£400m Interest £95m to £100m Capital expenditure c.£450m Net debt Around £1.2bn Underlying tax rate c.25% Onerous capital payments £100m 40
Slide 41: 2016/17 Estimated net new stores impact
2016/17 Estimated net new stores impact Net new space sales contribution Net new space sales contribution Weeks 1-4 (2.6)% Weeks 29-32 (2.9)% Weeks 5-8 (2.4)% Weeks 33-36 (2.9)% Weeks 9-12 (2.6)% Weeks 37-40 (1.9)% Weeks 13-16 (2.8)% Weeks 41-44 (0.9)% Weeks 17-20 (2.8)% Weeks 45-48 (0.4)% Weeks 21-
Slide 42: Sales area and store numbers
Sales area and store numbers Stores Sales area (000s sq. ft.) Number Estate at 31 January 2016 14,142 498 New openings 40 1 Closures (111) (7) Estate at 31 July 2016 14,071 492 Store sizes (000s sq. ft.) >40 25 - 40 15 - 25 <15 Number of supermarkets 53 260 121 58 Total space 2,232 8,573 2,556 710 4
Slide 43: Supplementary financials
Supplementary financials 31 July 2016 31 January 2016 Number of shareholders 44,664 45,571 Number of shares in issue (m) 2,335 2,335 Dividend 2016/17 2015/16 2014/15 Interim 1.58p 1.50p 4.03p Final 3.50p 9.62p Total 5.00p 13.65p Dividend dates Ex dividend 29 September 2016 Record 30 September 2016 P
Slide 44: Financial calendar
Financial calendar 2016/17 Date Q3 trading statement 3 November 2016 Christmas trading statement 10 January 2017 Financial year end 29 January 2017 Preliminary results announcement 9 March 2017 44
Slide 45: Morrisons
Morrisons Since 1899
Wm Morrison Supermarkets — H1 2016/17 Earnings Presentation on 6ix