Wm Morrison Supermarkets — FY2010/11 Earnings Presentation
72 slides from Wm Morrison Supermarkets's earnings presentation, Mar 10, 2011
Slide 1: Preliminary Results 52 weeks to 30 January 2011
M MORRISONS Preliminary Results 52 weeks to 30 January 2011 10 March 2011
Slide 2: Sir Ian Gibson - Chairman: Introduction
Sir Ian Gibson - Chairman Introduction
Slide 3: Overview
Overview • Sales growth ahead of the market • Underlying profits up 13% • Underlying earnings per share up 12% • Total dividend up 17% to 9.6p • Balance sheet strategy implemented – equity return announced • Board changes 2
Slide 4: Richard Pennycook: Results, balance sheet and the market
Richard Pennycook Results, balance sheet and the market
Slide 5: Financial summary
Financial summary £m 2010/11 2009/10 Turnover 16,479 15,410 7% Operating profit* 905 812 Net finance costs - 30 - 49 Property related transactions -1 4 P fit before Profit b f tax t and d exceptionals ti l 874 767 14% Pensions credit - 91 P fit before Profit b f tax t 874 858 Net debt 817 924 Divide
Slide 6: Turnover bridge
Turnover bridge £m 394 29 141 109 396 16,479 15,410 2009/10 New Like for Fuel Fuel price Other 2010/11 stores like volumes 5
Slide 7: Sales performance
Sales performance Group like-for-like, exc VAT 52 weeks 2010/11 2009/10 Sales – exc. Fuel 0.9% 6.0% Sales – inc. fuel 4.3% 3.4% Customers 0.2% 2.3% Other metrics Sales per customer (£) £23.18 £23.08 Sales (£ per sq. sq ft ft.)) £21 01 £21.01 £21 03 £21.03 6
Slide 8: Underlying earnings
Underlying earnings £m 2010/11 2009/10 Reported profit before tax 874 858 Underlying adjustments: – Property related transactions 1 -4 – Pensions credit - - 91 – Net pension interest (income)/cost (IAS 19) -6 4 Underlying profit before tax 869 767 13% Normalised tax at 30% - 261 - 230 Underlying pro
Slide 9: Operating profit
Operating profit 2010/11 2009/10 £m % £m % Turnover 16,479 15,410 G Gross profit fit 1 148 1,148 70 7.0 1 062 1,062 69 6.9 Other operating p g income 80 0.5 65 0.4 Administrative expenses* - 323 - 2.0 - 315 - 2.0 Operating profit* 905 5.5 812 5.3 20bps * Excluding property transactions and pensions
Slide 10: Operating profit - notes
Operating profit - notes 10/11 09/10 £m % £m % Turnover 16,479 15,410 Gross profit 1,148 7.0 1,062 6.9 Oth operating Other ti income i 80 05 0.5 65 04 0.4 Administrative expenses - 323 - 2.0 - 315 - 2.0 Operating profit profit* 905 5.5 812 5.3 Margin calculation effects: – Fuel mix (30bps decline in
Slide 11: Cash flow
Cash flow £m 10/11 09/10 Cash flow from operations 1,141 1,014 Proceeds from disposals 8 7 C it l expenditure Capital dit - 592 - 916 Sale and issue of shares 16 34 Acquisition of subsidiary -3 - Tax, interest, servicing of finance - 238 - 261 Dividends - 220 - 159 Cash flow 112 - 281 Opening net de
Slide 12: Balance sheet
MORRISONS Balance sheet
Slide 13: Balance sheet strategy
Balance sheet strategy • Principles and objectives • Financing • Dividends and equity return • Capacity and credit rating 12
Slide 14: Balance sheet review – past performance
Balance sheet review – past performance 5 year view i M i Morrisons UK sector average Annual dividend g growth 22% 13% Cash generation as % profit 35% 16% Sales growth to capex ratio 147% 118% We will continue to focus closely on capital efficiency and returns 13
Slide 15: Balance sheet review – principles and objectives
Balance sheet review – principles and objectives Principles: • Strong investment grade balance sheet A3 • Control of our real estate 87% freehold • Pension scheme fully funded on prudent assumptions £38m surplus • Cautious accounting policies Objectives: • Finance the investment programme p g • Enha
Slide 16: Balance sheet review - financing
Balance sheet review - financing • New revolving credit facility – £1 2b amongstt 8 banks £1.2bn b k – 5 years to March 2016 – £475m drawn Debt maturities £m 1400 RCF 1200 1200 1000 800 600 Sterling Sterling Sterling 400 Bond Bond Bond 200 00 150 200 200 0 2011 2012 2013 2014 2015 2016 2017 2018 15
Slide 17: Balance sheet review – shareholder returns
Balance sheet review – shareholder returns • Dividend – dividend growth in the year 17% – interim : final ratio increased to 30% – progressive policy to grow in line with underlying eps continues – 3 year commitment to a minimum 10% annual growth • Equity return – £1bn programme over two years – sta
Slide 18: Balance sheet review – capacity and credit rating
Balance sheet review – capacity and credit rating £bn £bn • Current debt capacity with investment grade 3 0 – 3.5 3.0 35 • Opening net debt position (0.8) • Two year capex guidance (2.0) • c. 80% funded from organic cash generation 1.6 • Equity retirement proposal (1.0) • Remaining balance b l sheet
Slide 19: The market
MORRISONS The market
Slide 20: Consumers under pressure
Consumers under pressure Real disposable p income g growth • Inflation hitting real incomes • Rising unemployment 1.0% • Taxes T iincreasing i -0.7% • Pressure on consumers -2.0% 2009 2010 2011(f) Source: Capital Economics Nov 2010; Capital Economics, Feb 2011 19
Slide 21: Inflation across the value chain
Inflation across the value chain Oil Prices • World commodity prices CAGR continue to rise +9% 2006 2010 • Food prices lagged, and Agricultural Prices CAGR lower but nonetheless lower, +18% increasing 2006 2010 Food CPI • Sector has shielded the CAGR consumer from input price +5% 9.1% effects 2.5% 4
Slide 22: Consumer responses favour the supermarket sector
Consumer responses favour the supermarket sector Consumers say they’re cash strapped • Value-conscious 68% 27% Saving on household expenses N spare cash No h Supermarket shoppers buying • Consolidating trips Homewares 24 5% 25.9% 24.5% 25 9% Electricals 14.6% 16.3% 2009 2010 2009 2010 Family evening
Slide 23: New space
New space 2010 • Strong space growth 5 3% 5.3% 3.6% 2 4% 2.4% 1.6% 33% 30% 93% 56% Tesco Sainsbury Morrisons Asda 2012 • Continuing to 2012 6.6% 5.8% 4.7% 3.5% Supermarket food contribution to total space growth 39% 41% 93% 73% Tesco Sainsbury Morrisons Asda Source: company data 22
Slide 24: Underlying trends continue
Underlying trends continue • ‘Top up shopping’ driving growth of convenience Average 9 visits to grocers • Consumers buying online S Source: per week KWP 20% online grocery growth Source: IGD Source: IGD 23
Slide 25: Morrisons well placed
Morrisons well placed “We expect the economic backdrop to remain challenging in 2011, with higher taxes, government spending cuts, inflation and rising unemployment all continuing to weigh on consumer confidence and disposable incomes. With our unique position of high g quality food at great g value
Slide 26: Dalton Philips: Business review
Dalton Philips Business review
Slide 27: Recap: Our vision for the business
Recap: Our vision for the business Different, Reinforce our Seize the differences opportunities 26
Slide 28: Attracting great talent
Attracting great talent Richard Hodgson Nick Collard Belinda Youngs Group Commercial Commercial Director, Private Brand Director Di t Director A bi t and Ambient dFFrozen Neil Nugent Scott Weavers-Wright Gordon Mowat Morrisons Chef CEO Kiddicare Strategy Director 27
Slide 29: A strong management team
A strong management team Dalton Philips Chi f Executive Chief E ti Mark Gunter Martyn Jones Richard Pennycook Group Retail Group Corporate Finance Director Director Services Director Richard Hodgson Mark Harrison Norman Pickavance Commercial Stores Director HR Director Director Martyn Fletcher Neal
Slide 30: Three areas of focus
Three areas of focus • Driving topline • Increasing efficiency • Capturing growth 29
Slide 31: Driving topline
Driving topline Moving further ahead Optimising our Completing National on Fresh space to Nationwide Strengthening our Enhancing our service Brand culture l 30
Slide 32: Moving further ahead on Fresh
Moving further ahead on Fresh Preparing fresh food in-store Morrisons 69 Asda 28 • Extend our lead Sainsbury 25 • Launch Fresh Lab Tesco 22 • Test new concepts Committed to providing fresh food Morrisons 58 Asda 41 Sainsbury 51 Tesco 41 Source: Hall & Partners Brand Tracker 31
Slide 33: Video playing
MORRISONS ‘Longred Chit Jalapene Chil Tinkerbell peppers 70, We Oph =e e120 a: -w I
Slide 34: Moving further ahead on Fresh
Moving further ahead on Fresh • Heard great feedback Produce Butchery • Encouraged by +8% 8 +9% 9 th results the lt DDelili Fresh • Refine further +31% Flowers • Unbeaten on +43% fresh Source: Morrisons internal data 4 weeks ending 27/02/11 32
Slide 35: Optimising our space
Optimising our space • Liberate space • Free up 5 – 15% • Identifyy category g y opportunities • Trial in progress • 11% liberated • 1,600 net SKU reduction 33
Slide 36: Video playing
Video playing M MORRISONS (/
Slide 37: Optimising our space
Optimising our space • Liberate space • Free up 5 – 15% • Identifyy category g y opportunities • Trial in progress • 11% liberated • 1,600 net SKU reduction 33
Slide 38: Optimising our space
Optimising our space 5% - 15% Liberated freeing 750k sq.ft. Number off stores N 10k 20k 30k 40k 50k Store size (sq.ft.) 34
Slide 39: Completing National to Nationwide
Completing National to Nationwide Source: Kantar Worldpanel • 7m households Total without easy access share h • Target 1.5m sq.ft. over 3 years 12.8% London 6 4% 6.4% South & • Met M our target off 400k South sq.ft. 2010/11 East 7.3% 35 Postcodes within a 10 minute drive time, source: Experian 2010
Slide 40: Completing National to Nationwide
Completing National to Nationwide Space growth targets • 600k sq.ft. planned 2011/12 New Current 1.1m • Exceed 1.5m sq.ft. target +0.2m • Seize opportunity to grow +0.1m 0.6m without cannibalisation 0 5m 0.5m 0.4m • Deliver a revised target g of 2.5m over the next 3 years 2010/11 2011/12 2012/13 201
Slide 41: Strengthening our Own Brand
Strengthening our Own Brand • Transform “own label” to “Morrisons Morrisons Brand” Brand • Create distinctive products Own label participation 50% • Close the gap • Build B ild on £6b £6bn sales l per year 0 Morrisons Sainsburys 37
Slide 42: Strengthening our Own Brand
Strengthening our Own Brand • Grown own brand by 5.1% • 3,000 3 000 new / re-launched re launched products • Won 14 awards • Formed a new team • Conduct thorough review • Rollout from Q4 • Complete 3 year journey 38
Slide 43: Enhancing our service culture
Enhancing our service culture • Over 130,000 colleagues • Huge H service i opportunity t it • ‘HOT’ service lab initiated • Engage our colleagues • 48,000 trained to NVQ • Largest apprentice provider 39
Slide 44: Enhancing our service culture
Enhancing our service culture • 95% mystery shopper compliance • Drive down labour turnover 2%pts • Reduce absence 0.5%pts Labour Turnover Absence 40
Slide 45: Three areas of focus
Three areas of focus • Driving topline • Increasing efficiency • Capturing growth 41
Slide 46: Increasing efficiency
Increasing efficiency Driving store Revamping our productivityy p systems y Tackling g indirect Increasingg network procurement efficiency 42
Slide 47: Driving store productivity
Driving store productivity • 1 hour per day equals c£1m £ • Launch productivity lab Idea Incubate Roll out • 28 initiatives tested so far • 5 initiatives rolling out 43
Slide 48: Driving store productivity
Driving store productivity Reduce facing across Automate stock taking Increase shelf ready packaging Banana hammocks Reduce facing up 44
Slide 49: Driving store productivity
Driving store productivity £100m • Complete trials • Roll out across estate • Deliver £20m in 2011/12 £20m • Target £100m by 2013/14 2011/12 2013/14 45
Slide 50: Revamping our systems
Revamping our systems • Biggest project of its kind • EPOS & cash office • Intelligent labour planning • Voice picking • £4m EBIT in 2010/11 46
Slide 51: Revamping our systems
Revamping our systems • Complete EPOS & cash office roll out • Integrate new product file • Roll out Oracle ERP in Produce £100m+ • Unlocking over £100m by 2013/14 £4m 2010/11 2013/14 47
Slide 52: Tackling indirect procurement
Tackling indirect procurement • Move from 30% in scope to 100% • Taskforce in place • Capex in scope • Saved £28m in 2010/11 48
Slide 53: Tackling indirect procurement
Tackling indirect procurement £100m • Targeting £100m EBIT £60m 2013/14 £28m 20 0/ 2010/11 20 / 2 2011/12 20 3/ 2013/14 • Streamline new store build – reduce cost by £2-3m per store – 30% less time Build cost Build time 49
Slide 54: Increasing network efficiency
Increasing network efficiency • Build capacity • Reduce costs • Improve efficiency • Great G progress on B Bridgwater id 50
Slide 55: Increasing network efficiency
Increasing network efficiency • Open Bridgwater Q4 • Serve 70 stores from 800k sq.ft. sq ft • Complete p our network • £20m EBIT from 2014/15 × ××× × 51
Slide 56: Three areas of focus
Three areas of focus • Driving topline • Increasing efficiency • Capturing growth 52
Slide 57: Capturing growth
Capturing growth Food Production E l i C Exploring Convenience i M i online Moving li 53
Slide 58: Food production
Food production Simply • 2nd largest fresh food producer p Fresh Farmers Boy • Key point of difference Deeside • 2 acquisitions in 2010/11 • £50m EBITDA 2013/14 Offshore: Bos Brothers Holland 54
Slide 59: Food production
Food production Simply Fresh 100% 12% • Made great progress on integration • Adding volume Volume Conversion cost Farmers Boy Deeside • Reducing g cost 100% 20% • Invest in new categories Volume Conversion cost 55
Slide 60: Exploring convenience
Exploring convenience • Significant opportunity Average 9 visits to grocers per week • Trial 3 stores Source: KWP Convenience market £41bn • Identified 3 sites £30bn • Store St ffascia i agreed d • Fresh focussed proposition p p 2009 2014 Source: IGD 56
Slide 61: Exploring convenience
Exploring convenience u MORRISONS We'll do...|
Slide 62: Moving online
Moving online • Growing demand from shoppers • Understand the economics • Made great progress • 2 exciting i i iinvestments 58
Slide 63: kiddicare.com
kiddicare.com Unique visitors +42% • Acquired a leader in babycare • Award winning multi- channel proposition proposition, 2008/09 2009/10 and Sales +41% • Strong growth t j t trajectory 2008/09 2009/10 59
Slide 64: kiddicare.com – the benefits
kiddicare.com – the benefits Technology Speed S l bility Scalability Multi-channel Best in class 60
Slide 65: Food online
Food online MORRISONS 4000 BE RF ou! ae = ae ga ema WelcometoTesco.comGroceries __ Muliseneh/Exress ” Shopping basket It's easy to get started: Fo ame LS17780 Change dtr adtaoe BockSiot Vewiuibete) GREE Toslcuncaperts oo Guide price onems) £0.00 sane Fed Food & drink a js week’ meal Piet his i. Ever
Slide 66: Food online
Food online M MORRISONS wfreshdirect, “am |0:/0 210%" 05/0. CART INFO ‘ACCOUNT | 0% HELP READY TO COOK - HEAT & EAT - BAKERY - CATERING PASTA - COFFEE - GROCERY - HEALTH & BEAUTY - BUY BIG - FROZEN - WINE ga FRUIT ~ VEGETABLES - MEAT - SEAFOOD - DELI - CHEESE - DAIRY 4-MINUTE-MEALS La) WHAT'S GOOD -
Slide 67: FreshDirect
FreshDirect • Great fresh proposition Online sales +22% • Strong sales growth • Profitable • Morrisons team to be embedded b dd d 2008/09 2009/10 63
Slide 68: FreshDirect – the benefits
FreshDirect – the benefits Fresh credentials Online food expertise Systems & technology Operational processes 64
Slide 69: Moving online
Moving online • Drive growth in our investments • Learn from our partners • Leverage their expertise and t h l technology • Launch au c non-food o ood 2012/13 0 / 3 • Launch food 2013/14 65
Slide 70: Three areas of focus
Three areas of focus • Driving 750k Unbeaten 2.5m space ‘HOT’ Own topline ambient on fresh f h target service i b d brand space rollout 2012/13 onwards 2012/13 onwards over next 3 years by 2011/12 a 2-3 year journey • Increasing Indirect efficiency ffi i £100m store Evolve E ol e Bridgwater Bridg at
Slide 71: In summary
In summary 1.Another good year 2.Clear vision and plan, and a great team 3.Well positioned to face challenges 4.Strong core 5.Opportunity to grow 67
Slide 72: Q&A
MORRISONS Q&A
Wm Morrison Supermarkets — FY2010/11 Earnings Presentation on 6ix