Wm Morrison Supermarkets — H1 2011/12 Earnings Presentation
59 slides from Wm Morrison Supermarkets's earnings presentation, Sep 8, 2011
Slide 1: Interim Results 26 weeks to 31 July 2011
Interim Results 26 weeks to 31 July 2011 8 September 2011
Slide 2: Dalton Philips – Introduction
Dalton Philips Introduction
Slide 3: Overview
Overview • Sales growth ahead of the market • Underlying profits up 8% • Underlying earnings per share up 10% • Pro-forma interim dividend up 10% to 3.17p 3
Slide 4: Results, balance sheet and the market
Richard Pennycook Results, balance sheet and the market
Slide 5: Financial summary
Financial summary £m 2011/12 2010/11 Turnover 8,737 8,135 7% Operating profit 458 427 Net finance costs -9 -15 Profit before tax 449 412 9% Net debt 1,055 849 Dividend 3.17p 1.23p 10%* * Pro-forma 5
Slide 6: Turnover bridge – half on half
Turnover bridge – half on half £m 240 27 76 139 120 8,737 8,135 2010/11 New stores Like-for-like Fuel volume Fuel price Other 2011/12 6
Slide 7: Underlying earnings
Underlying earnings £m 2011/12 2010/11 Reported profit before tax 449 412 Underlying adjustments: Net pension interest income (IAS 19) -7 -2 Underlying profit before tax 442 410 8% Normalised tax at 29.3% (2010/11: 30.0%) -130 -123 Underlying profit after tax 312 287 Number of shares (m) 2,620 2,642
Slide 8: Operating profit
Operating profit 2011/12 2010/11 £m % £m % Turnover 8,737 - 8,135 - Gross profit 597 6.8 568 7.0 Other operating income 41 0.5 36 0.4 Administrative expenses -180 -2.1 -177 -2.2 Operating profit 458 5.2 427 5.2 8
Slide 9: Shareholder returns
Shareholder returns Interim dividend Total dividend 2010/11 9.6p New interim ratio 30% Pro-forma interim 2010/11 2.88p Interim 2011/12 3.17p Growth – total 158% Growth – Pro-forma 10% Equity retirement Shares purchased and cancelled to 7 September 2011 £236m 9
Slide 10: The market
MORRISONS The market
Slide 11: The market backdrop
The market backdrop • Consumers remain under pressure • Sector response shows industry strength 11
Slide 12: Consumers under pressure
Consumers under pressure • Real disposable incomes Real disposable incomes falling 1.0% • 2011 feels like a deep recession • Consumers are adapting to -0.8% deal with the pressure -1.0% -2.0% 2009 2010 2011(f) 2012(f) Source; Capital Economics 12
Slide 13: Consumers under pressure
Consumers under pressure • Inflation driven by Inflationary pressure persists 20% commodities and exchange Bread & Fuel & Meat rates cereals lubricants • Everyday essentials hit 15% • Largest rise in food and grocery as a percentage of 10% GDP since World War II 5% 0% Source; ONS July 2011 13
Slide 14: Sector response – inflation not fully passed on
Sector response – inflation not fully passed on Food inflation Average fuel price (Jul 2011) (Feb – Jul 2011) • Supermarket sector – 6% 150bps 137 136 a consumer champion 4% 135 -1.4% 134 –resisting cost pressures 2% 133 0% 132 –leveraging world class ONS Kantar Oil Majors Supermarkets Disposable in
Slide 15: Trading and business review
Dalton Philips Trading and business review
Slide 16: Sales performance
Sales performance Group like-for-like, exc. VAT 52 weeks H1 2011/12 H1 2010/11 FY 2010/11 Sales – exc. fuel 2.2% 0.9% 0.9% Sales – inc. fuel 5.5% 5.1% 4.3% Customers 1.0% 1.1% 0.2% Other metrics Sales per customer (£) £22.33 £22.51 £23.18 Sales (£ per sq. ft.) £20.90 £20.75 £21.01 16
Slide 17: Consumers under pressure
Consumers under pressure • Spending power constrained • Confidence near a record low • Desire to reassert control over household budgets… 17
Slide 18: Consumer behaviour shifting
Consumer behaviour shifting Consumer spending type • Resurgence of shopping +4% and budgeting skills… • …professionalism in (8%) approach to shopping Credit card Debit card • Comparing prices and Source: BRC June 2011 ingredients Value OL consumer purchases • Spending to budget • Investing time to s
Slide 19: Consumers choosing Morrisons
Consumers choosing Morrisons Morrisons outperformance, vs total grocers • Grew faster than the 1.0% competition 0.9% 0.8% 0.7% • Our value proposition 0.4% 0.5% stood up strongly • Reinforced our position 20 Mar 11 7 Aug 11 Source: KWP Till Roll Aug 2011 19
Slide 20: Consumers choosing Morrisons
Consumers choosing Morrisons • Working harder than ever • Building on our areas of strength • Increasingly engaged and motivated workforce • Delivering on customer expectations 20
Slide 21: Recap: Our vision for the business
Recap: Our vision for the business Different, Reinforce our Seize the differences opportunities 21
Slide 22: Three areas of focus
Three areas of focus • Driving Moving topline Completing Enhancing Strengthening further Optimising National to our service our Own ahead on our space Nationwide culture Brand Fresh • Increasing efficiency Tackling Increasing Driving store Revamping indirect network productivity our systems procurem
Slide 23: Three areas of focus
Three areas of focus • Driving topline Moving Completing Enhancing Strengthening further Optimising National to our service our Own ahead on our space Nationwide culture Brand Fresh All 5 initiatives on track 23
Slide 24: Moving further ahead on Fresh
Moving further ahead on Fresh • Remain unbeaten on Fresh Produce Fish • Refine Lab and drive sales +13% +13% Bakery Wine • Enhanced our Fresh range +15% +24% • Leveraged our craft skills • Complemented with a new look & feel • Won more customers and increased basket spend Source: internal data May -
Slide 25: Optimising our space
Optimising our space Ambient Kids • Free 750k sq.ft. enabling: – Fresh roll out sales held 1,000 sq.ft. – category rebalance – improved experience Ready meals Fruit juice • Initiated space Lab +9% +20% • Grown sales and margin • Monitored and adjusted • Achieved positive customer feedback Source: in
Slide 26: Combining Fresh and space
Combining Fresh and space Q1 Q2 Q3 Q4 Fresh Kirkstall • Launched combined Space trials Fresh Shrewsbury Space • Embedded concepts from Labs Fresh St Albans Space • Complete trials Fresh • Liberate 750k sq.ft., enhance Fresh Wrexham Space proposition and look and feel 26
Slide 27: Three areas of focus
Three areas of focus • Increasing efficiency Tackling Increasing Driving store Revamping indirect network productivity our systems procurement efficiency All 4 initiatives on track 27
Slide 28: Driving store productivity
Driving store productivity £100m • Launched productivity Lab at York • Continue trials and rollouts £20m • Deliver £20m in 2011/12 • Deliver £100m by 2011/12 2013/14 2013/14 28
Slide 29: Driving store productivity
Driving store productivity Rolled out • Rolled out 10 initiatives New counter • Continued to trial opening times • Generated further ideas In trial Electronic • Deliver £20m this year ordering • Hit £100m target by (early prototype) 2013/14 29
Slide 30: Three areas of focus
Three areas of focus • Capturing growth Vertical Moving Exploring integration online convenience All 3 initiatives on track 30
Slide 31: Moving online
Moving online • Sustain growth in our investments • Learn from these best-in-class operators Other categories • Launch non-food in 2012/13 • Launch food in 2013/14 31
Slide 32: Moving online – non-food
Moving online – non-food • Developed kiddicare business plan: – commenced international International expansion expansion – driven integration Kiosks in-store • Review kiosk trial Morrisons products online • Prepare for non-food launch 2012/13 Just 4 bums 32
Slide 33: Moving online – food
Moving online – food • Formed a cross functional knowledge transfer team • Commenced work in New York Steve Clayborough - Manufacturing • Gather learnings from FreshDirect • Launch online food in 2013/14 Jonathan Bridle - Logistics 33
Slide 34: Moving online – building our team
Moving online – building our team Scott Weavers-Wright Simon Thompson MD Online Non-Food MD Online Food 34
Slide 35: Exploring convenience
Exploring convenience • Explore this significant opportunity • Launch M local • Trial 3 stores this year M local - Ilkley • Opened 2 trial stores • Created a differentiated fresh food experience M local - Wilmslow 35
Slide 36: Exploring convenience
Exploring convenience • Measure performance Ilkley • Analyse customer feedback Upton • Open our third store Rocks • Trial concept at different location types Wilmslow 36
Slide 37: In summary
In summary 1.Delivered good half year results 2.Core business fundamentally strong 3.Value proposition resonating with consumers 4.Strong progress on our initiatives 5.Focussed on our customers 37
Slide 38: Supplementary Information
MORRISONS Supplementary Information
Slide 39: Completing National to Nationwide
Completing National to Nationwide • Accelerate our store opening programme, opening 2.5m sq. ft. over the next 3 years • Open 600k sq. ft. in 2011/12 Netto – Boston, 2010 • Opened over 100k sq.ft. of new space in the first half of the year • Became the first major retailer to open and trade a former
Slide 40: Strengthening our Own Brand
Strengthening our Own Brand Quality Nutrition Pricing • Conduct a thorough review and develop our proposition • Commence rollout from Q4 – the first step of a 3 year Branding Own Brand Marketing journey to transform our brand Merchandising Design Elements of our new brand proposition • Reviewed 8k O
Slide 41: Enhancing our service culture
Enhancing our service culture • Rollout the HOT (Hello, Offer, Thank) programme to deliver outstanding service for our customers whilst maintaining efficiency • Target 95% mystery shopper compliance • Drive down labour turnover 2%pts and absence by 0.5%pts HOT in action • Rolled out the programme ac
Slide 42: Revamping our systems
Revamping our systems • Our Evolve programme continues to be a major focus for the organisation • We would complete EPOS & cash office rollout, integrate new product file and rollout Oracle ERP in Produce • Unlock over £100m by 2013/14 A screen snapshot of our new product file • Completed the roll o
Slide 43: Increasing network efficiency
Increasing network efficiency • Complete our distribution network, unlocking capacity and improving accuracy • Open Bridgwater in Q4 2011/12 • Generate £20m EBIT saving from 2014/15 • Work is on track and Bridgwater RDC will open as planned in October this year and be fully operational in Q1 of 2012
Slide 44: Vertical integration
Vertical integration • Explore further investment opportunities in line with our plan to bring our total investment to £200m • Generate £50m extra EBITDA by 2013/14 Colleagues at 120,000 sq. ft. facility, Derby • Acquired the Flowerworld business in June; building on the acquisitions of Worsley and
Slide 45: Balance sheet
Balance sheet £m H1 2011/12 H1 2010/11* Fixed assets and investments 8,232 7,770 Working capital -1,842 -1,867 Net pensions assets / (liabilities) 51 -6 Net debt -1,055 -849 Net assets 5,386 5,048 Gearing 20% 17% * Restated as a result of an amendment to IAS 17 Leases 45
Slide 46: Finance costs
Finance costs £m 2011/12 2010/11 Interest payable -22 -22 Less: capitalised 6 3 -16 -19 Interest receivable 2 2 Other finance income 1 2 Other finance cost -4 -3 -17 -18 Net pensions income 7 2 Amortisation of bonds 1 2 Fair value movements on derivatives - -1 Net finance costs -9 -15 46
Slide 47: Depreciation
Depreciation £m 345 319 289 290 304 282 163 164 169 176 153 160 151 153 155 129 126 130 H1 H2 FY H1 H2 FY H1 H2 FY H1 H2 FY H1 H2 FY H1 H2 Forecast FY Forecast 06/07 07/08 08/09 09/10 10/11 11/12 • H2 06/07 & H1 07/08 – accelerated depreciation of branded assets • H2 07/08 – Safeway structural asset
Slide 48: Sales performance (ex VAT)
Sales performance (ex VAT) 2011/12 Group like-for-like 26 weeks Q1 Q2 H1 Sales – exc. fuel 2.5% 1.8% 2.2% Sales – inc. fuel 5.8% 5.1% 5.5% Customers 1.3% 0.7% 1.0% Sales per customer 1.2% 1.1% 1.2% Other metrics Sales per customer (£) £22.32 £22.37 £22.33 Sales (£ per sq. ft.) £20.87 £20.94 £20.90 4
Slide 49: Sales performance – current stores
Sales performance – current stores (exc. VAT) Group like-for-like H1 11/12 H1 10/11 H1 10/11 Current stores Reported 26 wks ended 26 wks ended 26 wks ended 31/07/11 01/08/10 01/08/10 Sales – exc. fuel 2.2% - 0.9% Sales – inc. fuel 5.5% - 5.1% Customers 1.0% - 1.1% Other metrics Sales per customer (£
Slide 50: FY 2011/12 guidance summary
FY 2011/12 guidance summary Sales Net new space expected to contribute around 2.5% to total sales growth (exc. fuel) Finance costs Expected to increase by £10m in 2011/12 Tax rate Effective tax rate expected to be around 29% Space Full year net space growth of around 5% Capital expenditure Full year
Slide 51: Sales area and store numbers
Sales area and store numbers Area (k sq.ft.) Number Estate at 30 January 2011 12,261 439 New openings - standard 129 16 - convenience 3 1 Extensions 11 1 Estate at 31 July 2011 12,404 456 Petrol filling stations 296 Number of stores Sq.ft. sales area > 40k 25k – 40k 15k – 25k < 15k Total standard st
Slide 52: Investment programme 2011/12
Investment programme 2011/12 Q2 Q3 Q4 Accrington Bathgate Hadleigh Armthorpe Braintree Kirkby in Ashfield Bedlington Cramlington Leigh Bolton Houghton Regis Merchant City, Glasgow Boston Little Hulton Portsmouth Bransholme New Brighton Salford Castleford Newport Upton Rocks* Castletown Peterborough
Slide 53: Supplementary financials
Supplementary financials 1 August 2010 31 July 2011 Number of shareholders 48,777 47,320 Number of shares in issue (m) 2,657 2,604 Dividend 2009/10 2010/11 2011/12 Interim 1.08p 1.23p 3.17p* Final 7.12p 8.37p - Total 8.2p 9.6p - Dividend dates: Ex dividend 28 September 2011 Record 30 September 2011
Slide 54: Financial calendar
Financial calendar 2011/12 Q3 IMS 3 November 2011 Christmas trading and pre close statement 19 January 2012 Financial year end 29 January 2012 Preliminary results 8 March 2012 2012/13 Q1 IMS 3 May 2012 Annual General Meeting 14 June 2012 Half year end 29 July 2012 Interim results announcement 6 Sept
Slide 55: Awards
Awards Winner of Retail Week Winner of The Grocer Employer of the year for the Employer of the year for the 2nd 2nd year running year running 55
Slide 56: Board of Directors
Board of Directors Sir Ian Gibson Chairman Sir Ian Gibson joined the Group as Non-Executive Deputy Chairman in September 2007. He was appointed Chairman in March 2008. Sir Ian is Chair of the Board’s Nomination Committee and a member of its Remuneration Committee and Corporate Compliance and Respons
Slide 57: Board of Directors
Board of Directors Nigel Robertson Senior Independent Director Nigel joined the Group as a Non-Executive Director in July 2005. With effect from 10 March 2011 Nigel was appointed as Senior Independent Director. He is a member of the Nomination, Remuneration and Corporate Compliance and Responsibilit
Slide 58: Management Board
Management Board Dalton Philips Chief Executive See Board of Directors Richard Pennycook Group Finance Director See Board of Directors Mark Harrison Group Retail Director Mark was appointed Group Retail Director and joined the Management Board in June 2011. His responsibilities are retail operations
Slide 59: Management Board
Management Board Martyn Jones Group Corporate Services Director Martyn was appointed to the Management Board in October 2010 as Group Corporate Services Director, responsible for policy, technical standards and external communications. He joined Morrisons in 1990 as Trading Manager and was promoted
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