Wm Morrison Supermarkets — H1 2010/11 Earnings Presentation
76 slides from Wm Morrison Supermarkets's earnings presentation, Sep 9, 2010
Slide 1: Interim Results 26 weeks to 1 August 2010
M MORRISONS Interim Results 26 weeks to 1 August 2010 9 September 2010
Slide 2: Introduction - Sir Ian Gibson, Chairman
Sir Ian Gibson - Chairman Introduction
Slide 3: Agenda
Agenda Introduction Sir Ian Gibson Results Richard Pennycook Market backdrop Richard Pennycook First impressions & business review Dalton Philips Q&A 2
Slide 4: Results - Richard Pennycook
MORRISONS Richard Pennycook Results
Slide 5: Financial summary
Financial summary H1 £m 10/11 09/10 Turnover 8,135 7,458 9% Operating profit* 427 382 Net finance costs -15 -27 Profit on property related transactions - 3 Profit before tax and exceptionals 412 358 15% Pensions - 91 Profit before tax 412 449 (8)% Net debt 849 885 Dividend 1.23p 1.08p 14% * Excludin
Slide 6: Underlying earnings
Underlying earnings H1 £m 10/11 09/10 Reported profit before tax 412 449 Underlying adjustments: – Profit on property related transactions - -3 – Pensions credit - -91 – Net pension interest (income)/cost (IAS 19) -2 4 Underlying profit before tax 410 359 14% Normalised tax at 30% -123 -108 Underlyi
Slide 7: Turnover bridge – half on half
Turnover bridge – half on half £ Mn 241 13 74 61 288 8,135 7,458 2009/10 New Like for Fuel Fuel price Other 2010/11 stores like volumes 6
Slide 8: Like for like sales
Like for like sales 43 new stores Enter LFL 60 40 20 0 Q1 Q2 Q3 Q4 Q1 2009/10 openings (cumulative) 2010/11 2011/12 • New stores are included in LFL reporting at the commencement of the financial year after they have completed a full year’s trading • All performance is reported ex VAT • All reportin
Slide 9: Turnover bridge – half on half
Turnover bridge – half on half £ Mn 241 13 74 61 288 8,135 7,458 2009/10 New Like for Fuel Fuel price Other 2010/11 stores like volumes 8
Slide 10: Sales performance
Sales performance Group like for like, exc VAT H1 10/11 FY 09/10 H1 09/10 26 wks ended 52 wks ended 26 wks ended 01/08/10 31/01/10 02/08/09 Sales – exc. fuel 0.9% 6.0% 7.8% Sales – inc. fuel 5.1% 3.4% 3.9% Customers 1.1% 2.3% 3.3% Other metrics Sales per customer (£) £22.51 £23.08 £22.76 Sales (£ pe
Slide 11: Operating profit
Operating profit H1 10/11 09/10 £m % £m % Turnover 8,135 - 7,458 - Gross profit 568 7.0 518 6.9 Other operating income 36 0.4 31 0.4 Administrative expenses -177 -2.2 -167 -2.2 Operating profit* 427 5.2 382 5.1 10bps * Excluding property transactions and pensions credit 10
Slide 12: Operating profit - notes
Operating profit - notes • Margin calculation affected by: – fuel mix effect diluting current year (30 bps decline in margin) – one off costs of Co-Op/Somerfield store acquisition prior year (30 bps increase in margin) H1 10/11 09/10 £m % £m % Turnover 8,135 - 7,458 - Gross profit 568 7.0 518 6.9 Ot
Slide 13: Cash flow
Cash flow £m 10/11 09/10 Cash flow from operations 580 533 Proceeds from disposals 2 4 Capital expenditure -236 -572 Sale and issue of shares 13 28 Acquisition of subsidiary -3 - Tax, interest, servicing of finance -70 -100 Dividends -188 -131 Cash flow 98 -238 Opening net debt 924 642 Closing net d
Slide 14: Outlook
Outlook Expect H2 to continue low growth in our market Reflects continued pressure on the consumer Trend as expected so we are managing accordingly Continue to gain new customers and to exercise strong control of costs The Board has confidence we will deliver profit expectations for the year 13
Slide 15: Market backdrop
MORRISONS Market backdrop
Slide 16: The Market
The Market Morrisons has been ahead of the market for 3 years % change in total Morrisons sales vs. total grocers sales 5.1 3.5 2.5 2.3 -3.1 -11.3 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Aug-10 Source: Kantar Worldpanel – Till Roll 12we 8 Aug 2010 (KWP P09) 15
Slide 17: Macro trends - Population growth
Macro trends - Population growth UK population trend Mn 58.5 61.4 66.1 +2.9 61.8 +4.3 1998 2008 2009 2019 Source: Office for National Statistics 16
Slide 18: Macro trends - Food prices continue to firm
Macro trends - Food prices continue to firm Wheat Coarse grains US $ per metric ton US $ per metric ton 218 227 186 201 168 106 2005 2010 2015 2005 2010 2015 Vegetable oils Oilseeds US $ per metric ton US $ per metric ton 875 992 410 417 556 269 2005 2010 2015 2005 2010 2015 Source: OECD-FAO Agricul
Slide 19: Macro trends - Provenance, health and enjoyment are key
Macro trends - Provenance, health and enjoyment are key Long term, health and enjoyment have Demand for locally produced foods has become increasingly important reasons for accelerated consumption % 2006 2010 % 1995 2009 15 11 Specifically buy Health locally produced food 30 22 12* 34 Want more Enjo
Slide 20: The changing shape of UK grocery
The changing shape of UK grocery Growth 2009- 2009-2014 £ bn 4 176 11 -1 16 146 Grocery Supermarkets Convenience Online Traditional Grocery market Retailing market 2009 2014 Growth % 15% 37% 93% -11% 20% Source: IGD Research 19
Slide 21: Dalton Philips - Introduction and Update
Dalton Philips Introduction and Update
Slide 22: Set out operational levers
Set out operational levers 21
Slide 23: Discuss strategic options
Discuss strategic options 22
Slide 24: What's working...
oe a ne ee a ee What’s working... - = ee oS oe oS ee S 2 ee Me : oS oe oS ee SOG scr ean, — : — — : — oS — SE TCS aCe rece ieee re iene ean Te aoc ete nace une eg enn TE oC tee noc ase eee une re unc ica iene nn aee eGR EE BEES SE ee een es BE ee ee eee een es BEG One Se ea eee 2aee oe oo vee So : a
Slide 25: Fresh food is at the heart of what we do
Fresh food is at the heart of what we do 24
Slide 26: We have a unique food production capability
We have a unique food production capability 25
Slide 27: We're quick to get new items to the market…
We’re quick to get new items to the market… 26
Slide 28: With excellent availability…
With excellent availability… 27
Slide 29: And a strong, value focused programme
And a strong, value focused programme 28
Slide 30: We have outstanding store operators
We have outstanding store operators 29
Slide 31: And a uniquely skilled workforce
And a uniquely skilled workforce 30
Slide 32: And behind it all, we've got our Values
And behind it all, we’ve got our Values 31
Slide 33: Where are the opportunities?
Where are the opportunities? 32
Slide 34: Simplifying our range
Simplifying our range ae “aelll Se ye es
Slide 35: Creating true Own Label differentiation
Creating true Own Label differentiation 34
Slide 36: Eliminating duplication on deal
Eliminating duplication on deal 35
Slide 37: Improving the flow of goods
Improving the flow of goods 36
Slide 38: Strengthening our service culture
Strengthening our service culture 37
Slide 39: Ensuring our systems support our people
Ensuring our systems support our people 38
Slide 40: Moving at pace Lab… Merchandising
Merchandising Moving at pace Lab… 39
Slide 41: What we are going to do
What we are going to do 40
Slide 42: My vision for the business
My vision for the business Different, and Better Than Ever Reinforce our Seize the differences opportunities 41
Slide 43: Three areas of focus
Three areas of focus Driving Topline Increasing Efficiency Capturing Growth 42
Slide 44: Driving Topline
Driving Topline Moving further ahead Enhancing our service Strengthening our on Fresh culture Brand Optimising our Completing National space to Nationwide 43
Slide 45: Fresh credentials: Already leading
Fresh credentials: Already leading Average % agreeing, Jan-June 2010 “They prepare more food fresh in store “They’ They’re committed to giving everyday than any other supermarket” supermarket” customers the freshest food possible” possible” Morrisons 69 58 Asda 28 41 Sainsbury 25 51 Tesco 22 41 Sour
Slide 46: Fresh credentials: Moving further ahead
Fresh credentials: Moving further ahead 8 major trials underway Fresh Lab Revitalise Lab 45
Slide 47: Enhancing our service culture
Enhancing our service culture 131,000 colleagues 100,000 Academy graduates by 2011 1,000,000 training days next year Unique craft skills 46
Slide 48: Strengthening our Brand
Strengthening our Brand From “Own Label” to “Morrisons Brand” …enabled by true differentiation …closing the gap vs. competition Leadership and resources to support the transformation 47
Slide 49: Optimising our space: Project Liberate
Optimising our space: Project Liberate Enabled by new systems “Macro Space Lab” Internal “Space Race” 48
Slide 50: Completing National to Nationwide
Completing National to Nationwide On track to meet 3 year growth target New Southern Property Office 49
Slide 51: Three areas of focus
Three areas of focus Driving Topline Increasing Efficiency Capturing Growth 50
Slide 52: Increasing Efficiency
Increasing Efficiency Driving store Revamping our productivity systems Tackling indirect Increasing network procurement efficiency 51
Slide 53: Driving store productivity
Driving store productivity Launched “Productivity Lab” Three phases to be tested Batched rollout of ideas 52
Slide 54: Revamping our systems: Evolve
Revamping our systems: Evolve New EPoS system in over 60 stores Intelligent Labour Planning in over 300 stores Indirect procurement in stores New general ledger in finance Oracle in manufacturing Warehouse Management System and voice picking in logistics New product file commenced in trading IT infr
Slide 55: Indirect procurement: Going further…
Indirect procurement: Going further… Expanding scope of review - Currently 30% of indirect spend - Expanding to total coverage - Leadership structure to support 54
Slide 56: Increasing network efficiency
Increasing network efficiency Improved logistics: - Expanded capacity, simplified network and reduced road miles - Implemented new systems: transport, planning and tracking - Rolled out voice picking in grocery and frozen Bridgwater and SW Produce DC H1 12/13 55
Slide 57: Three areas of focus
Three areas of focus Driving Topline Increasing Efficiency Capturing Growth 56
Slide 58: Strategic growth options
Strategic growth options 1. Core grocery 2. Food Production 3. Convenience 4. Online 5. ... 6. ... 57
Slide 59: Driving more advantage from Food Production
Driving more advantage from Food Production Quality and provenance 2nd largest fresh producer Product insight 15 locations Flexibility July: 2 new sites Cost / value advantage 3yr £50m EBITDA impact 58
Slide 60: Exploring convenience
Exploring convenience Large and growing market 3 trial stores in H1 11/ 12 - Fresh focused - Dedicated team Fresh, local and affordable alternative 59
Slide 61: Testing online
Testing online Growing demand from shoppers 2011: Geographic trial - Test customer impact - Trial different models - Understand economics 60
Slide 62: In summary…
In summary… Driving Topline Increasing Efficiency Capturing Growth 61
Slide 63: Stepping back
Stepping back Excellent foundation Huge opportunity Structured plan in place Team ready I know we can deliver 62
Slide 64: My vision of what we can be
My vision of what we can be Different, and Better Than Ever Reinforce our Seize the differences opportunities 63
Slide 65: Supplementary Slides
MORRISONS Supplementary Slides
Slide 66: Manufacturing additions
Manufacturing additions Simply Fresh Foods • Stir fry (100% of Wm existing range) and prepared vegetables (40% of Wm existing range) • Wm – 95% of SFF business • Located Worsley, Greater Manchester • 180 staff – retained • Opportunity to extend capacity and bring in other categories 65
Slide 67: Manufacturing additions
Manufacturing additions Farmers Boy Deeside • Cooked meat and deli meat production • Site dedicated to Morrisons within 3-4 months • Located Deeside, Clwyd • 340 staff • Opportunity to extend capacity through site expansion and development programme and bring in other categories 66
Slide 68: Balance sheet
Balance sheet £m H1 10/11 H1 09/10 Fixed assets and investments 7,768 7,486 Working capital -1,865 -1,918 Net pensions (deficit) / surplus -6 51 Net debt -849 -885 Net assets 5,048 4,734 Gearing 17% 19% 67
Slide 69: Finance costs
Finance costs £m H1 10/11 H1 09/10 Interest payable -22 -26 Less: capitalised 3 1 -19 -25 Interest receivable 4 4 Other finance costs -3 -5 -18 -26 Net pensions income / (expense) 2 -4 Amortisation of bonds 2 7 Fair value movements on derivatives -1 -4 Net finance income -15 -27 68
Slide 70: Stores analysis
Stores analysis Stores Estate at 31 January 2010 425 New openings (net) - Estate at 1 August 2010 425 Total sales area (sq. ft. m) 11.9 Freeholds and long leaseholds 89% Petrol filling stations 292 69
Slide 71: Sales performance (exc. VAT)
Sales performance (exc. VAT) Q1 10/11 Q2 10/11 H1 10/11 13 wks ended 13 wks ended 26 wks ended 02/05/10 01/08/10 01/08/10 Sales exc. fuel – total 5.9% 5.6% 5.8% – LFL 0.8% 1.1% 0.9% Sales inc. fuel – total 9.5% 8.3% 8.9% – LFL 5.2% 5.1% 5.1% Customers (LFL) 1.1% 1.0% 1.1% Sales per customer LFL (£)
Slide 72: Sales performance
Sales performance Group like for like, exc VAT H1 10/11 H1 09/10 H1 09/10 Current Stores Reported 26 wks ended 26 wks ended 26 wks ended 01/08/10 02/08/09 02/08/09 Sales – exc. fuel 0.9% - 7.8% Sales – inc. fuel 5.1% - 3.9% Customers 1.1% - 3.3% Other metrics Sales per customer (£) £22.51 £22.53 £22
Slide 73: Depreciation
Depreciation £m 320 304 282 289 290 163 160 165 153 151 153 155 129 126 130 H1 H2 FY H1 H2 FY H1 H2 FY H1 H2 FY H1 H2 FY forecast forecast 06/07 07/08 08/09 09/10 10/11 • H2 06/07 & H1 07/08 – accelerated depreciation of branded assets • H2 07/08 – Safeway structural assets fully depreciated • H1 08
Slide 74: Awards
Awards The Grocer Gold Awards 2010 Quality Drink Awards 2010 Employer of the year 2 Category Winners (white wines over £9.99 and The Grocer Own Label Excellence Fortified wines) Awards 2010 2 Gold and 3 Silver Category Winners Decanter Awards 2010 2 Gold and 10 Silver International Wine Challenge Ca
Slide 75: Top team
Top team Martyn Fletcher Dalton Philips Neal Austin Manufacturing CEO Logistics Director Director Mark Gunter Terry Hartwell Martyn Jones Group Retail Group Property Group Trading Director Director Director Angus Maciver Richard Norman Group Marketing Pennycook Pickavance & Communications Group Fina
Slide 76: MORRISONS Interim Results
M MORRISONS Interim Results 26 weeks to 1 August 2010 9 September 2010
Wm Morrison Supermarkets — H1 2010/11 Earnings Presentation on 6ix