14 September Interim Results. 26 weeks to 30 July 2017

Transcription

1 14 September 2017 Interim Results 26 weeks to 30 July 2017

2 Andrew Higginson Chairman 2

3 David Potts CEO 3

4 Fix, Rebuild and Grow Fix Stabilise like-for-like Improve capability: People, process and technology Reduce and recycle costs Rebuild Deliver the six priorities Group like-for-like sales, ex-fuel, ex-vat 3.4% 2.9% 2.6% 2.1% 1.8% 0.7% Q1 Q2 Q3 Q4 Q1 Q2 2016/ /18 Consistent sales volume Grow Deliver higher, sustainable earnings Drive improvements for all stakeholders Broad based growth 4

5 The last six months Further progress during the half Strong cash flow Lower debt Like-for-like customer transactions up 3.1% Supermarkets like-for-like transactions 4.3% 4.1% 4.6% 4.6% 3.2% Customer satisfaction improved Price Crunch Wholesale supply expansion with McColl s Q1 Q2 Q3 Q4 Q1 Q2 2016/ /18 Customer satisfaction Revival of the Safeway brand Amazon and Rontec Q1 Q2 Q3 Q4 2016/ /18 5

6 The six priorities To be more competitive To serve customers better Find local solutions Develop popular and useful services To simplify and speed up the organisation To make the core supermarkets strong again 6

7 Be more competitive Morrisons Makes It The Best Savers Mid Tier Eat Smart Our Brand Free From Flowerworld Nutmeg Safeway 7

8 Be more competitive Own Label Range of the Year 8

9 Serve customers better Automated ordering Camera technology at checkouts Store pick online home delivery General merchandise online offer Flowers online offer Year round Food to Order Morrisons.com Store pick in the North East Food to Order Flowers online offer 9

10 Find local solutions Local asparagus in Malton Local milk in Sheffield Local Edinburgh Gin Local food maker roadshow in Shropshire Local marketing at Wetherby 10

11 Develop popular and useful services Strong fuel like-for-like sales up 13.7% Improving and extending forecourt convenience offer Café like-for-like sales up over 4% Hand car wash Tyre change concessions Further roll out of parcel pick-up services Morrisons Café Morrisons Daily forecourt at Leicester Morrisons Daily ready for opening day 11

12 Simplify and speed up Improving availability, reducing stock levels and costs Removing or digitising in-store admin Automating process for markdowns Building long-term partnerships with suppliers Simplifying procurement of goods not for resale Lower stock levels Automated markdown terminal 12

13 Make core supermarkets strong again Fresh Look in almost half of supermarkets by year end Fresh Look insights delivering national benefit Fruit & Veg and Florist departments updated by Christmas Strengthening stores in their local catchments Nutmeg Kids Fresh Look Fruit & Veg and Florist Nutmeg Womens 13

14 A recovery plan that benefits all stakeholders Customers Improved shopping trip Popular supermarkets More visits Colleagues Motivated and valued Leading from the front Sharing in success Suppliers Long-term partnerships Serving customers better, together Shareholders Creating value Sustained growth in shareholder returns 14

15 Plans for the second half Team and capabilities improve New ranges Fresh Look Focus on price and value More in-store services Morrisons.com to more customers Wholesale supply Capital light opportunities broader, stronger. Popular and accessible 15

16 Trevor Strain CFO 16

17 Financial summary m H1 2017/18 H1 2016/17 Turnover 8,421 8,032 Operating profit Net finance costs (34) (81) Share of profit from joint ventures 1 - Profit before tax % Underlying profit before tax * % Underlying earnings per share * 5.79p 5.04p Net debt 932 1, m Dividend 1.66p 1.58p * Underlying profit before tax and underlying earnings per share exclude impairment and provisions for onerous contracts, profit/loss on disposal and exit of properties and sale of businesses and investments, the impact of pension volatility and other items that do not relate to the Group s principal activities on an ongoing basis 17

18 Turnover 2016/ /18 Like-for-like (ex-vat) H1 FY Q1 Q2 H1 Group: Sales ex-fuel % Sales inc-fuel % Supermarkets * Sales ex-fuel % Items per basket % (3.9) (4.6) (6.9) (5.5) (6.2) Number of transactions % Total Group Sales m ,421 8, H1 2016/17 Net new space Like-for-like Fuel H1 2017/18 * Excludes Morrisons.com sales through Dordon CFC 18

19 Operating profit H1 2017/18 H1 2016/17 m % m % Turnover 8,421-8,032 - Gross profit Operating profit Profit on disposals (13) (0.2) (17) (0.2) Pension scheme set-up credit (10) (0.1) - - Other Underlying operating profit * * Underlying operating profit excludes impairment and provisions for onerous contracts, profit/loss on disposal and exit of properties and sale of businesses and investments and other items that do not relate to the Group s principal activities on an ongoing basis 19

20 Incremental profit from a broader, stronger business Increased guidance to 75m 125m in the medium-term 14m delivered in the half. Total now delivered is 32m in 18 months, through: Lower interest Reduced online losses Services Wholesale 700m annualised wholesale sales by the end of 2018, over 1bn in due course 20

21 Cash flow summary m Change in net debt (636) / / / /17 H1 2017/18 Net debt: 2,817m 2,340m 1,746m 1,194m 932m 21

22 Cash flow summary m Free cash flow (before capital return) * / / /17 H1 2017/18 Cumulative: 785m 1,639m 2,309m 2,661m * Movement in net debt adjusted for dividends paid m Free cash flow (before capital returns, disposal proceeds, working capital and onerous payments) / / / /18 H1 22

23 Cash flow m H1 2017/18 H1 2016/17 Cash flow from operations ex-onerous payments Capital expenditure (191) (163) Tax and interest (68) (41) Onerous payments (33) (27) Purchase of own shares (4) (2) Proceeds and payments to settle share-based incentive schemes 24 - Dividends (90) (81) Costs incurred on repayment of borrowings - (25) Cash flow pre-disposals Proceeds from disposals Cash flow post-disposals Other non-cash movements (8) 26 Opening net debt (1,194) (1,746) Closing net debt (932) (1,269) Free cash flow pre-dividend

24 Improvement programmes Significant cost savings across four areas: Automated ordering More effective distribution hand offs Less in-store administration and paperwork Improvement in goods not for resale procurement and supplier partnerships 24

25 Balance sheet The balance sheet is strong and getting stronger Sustained working capital benefits Lower net debt, reduced to 932m Net debt : EBITDA 1.1x Lease adjusted net debt : EBITDAR 2.1x Strong debt maturity profile Net pension surplus of 392m ROCE increased to 7.8% from 6.5% Continue to be capital disciplined and cash generative Committed to capital allocation framework 25

26 The Plan Operational levers to enhance returns Capital structure levers to enhance returns Volume growth Margin Asset intensity Optimise assets Capital returns Profit growth Dividend yield EPS enhancement Optimise total shareholder return on basis of robust balance sheet 26

27 Appendices 27

28 Operational KPIs and sales performance 2016/ /18 Like-for-like (ex-vat) Q1 Q2 H1 H2 FY Q1 Q2 H1 Group: Sales ex-fuel % Sales inc-fuel % Supermarkets: * Sales per customer Sales per sq. ft LFL number of transactions % LFL items per basket % (2.8) (5.0) (3.9) (5.4) (4.6) (6.9) (5.5) (6.2) * Excludes Morrisons.com sales through Dordon CFC 28

29 Turnover bridge sales by channel * m ,565 6,399 ** H1 2016/17 Core Online Other H1 2017/18 * Excluding fuel ** Including other sales 29

30 2017/18 Estimated net new space impact Net new space sales contribution Net new space sales contribution Weeks 1-4 (0.6)% Weeks (0.1)% Weeks 5-8 (0.7)% Weeks (0.1)% Weeks 9-12 (0.4)% Weeks (0.1)% Weeks (0.3)% Weeks (0.1)% Weeks (0.2)% Weeks % Weeks (0.1)% Weeks % Weeks (0.1)% 30

31 Underlying profit before tax adjustments m Total Profit on disposals 13 Net pension income 4 Pension scheme set-up credit 10 Other (4) Total 23 31

32 Underlying profit before tax (UPBT) m H1 2017/18 H1 2016/17 Reported profit before tax Underlying adjustments: Profit on disposals (13) (17) Costs associated with the repayment of borrowings - 35 Pension scheme set-up credit (10) - Net pension income (4) (4) Other 4 - Underlying profit before tax * % * Underlying profit before tax excludes impairment and provisions for onerous contracts, profit/loss on disposal and exit of properties and sale of businesses and investments, the impact of pension volatility and other items that do not relate to the Group s principal activities on an ongoing basis 32

33 Underlying earnings per share (EPS) m H1 2017/18 H1 2016/17 Underlying profit before tax * Underlying tax charge at 24% (2016/17: 25%) (42) (39) Underlying profit after tax * Weighted average number of shares (m) 2,329 2,331 Underlying EPS * 5.79p 5.04p Dividend 1.66p 1.58p * Underlying profit and underlying earnings per share exclude impairment and provisions for onerous contracts, profit/loss on disposal and exit of properties and sale of businesses and investments, the impact of pension volatility and other items that do not relate to the Group s principal activities on an ongoing basis 33

34 Finance costs m H1 2017/18 H1 2016/17 Interest payable (33) (47) Provisions: unwinding of discount (6) (6) Other finance costs (1) (1) Underlying finance costs (40) (54) Other finance income 2 4 Underlying net finance costs (38) (50) Costs associated with repayment of borrowings - (35) Net pension income 4 4 Net finance costs (34) (81) 34

35 Balance sheet m H1 2017/18 H1 2016/17 Fixed assets and investments 1 7,691 7,709 Working capital 2 (2,121) (2,006) Provisions and tax (777) (801) Net pensions asset Net debt (932) (1,269) Net assets 4,253 3,882 Key metrics: Interest cover 3,5 5.2x 4.1x Net debt : EBITDA 3, Lease adjusted net debt : EBITDAR 3,4, Gearing 22% 33% ROCE 4,5 7.8% 6.5% 1 Including goodwill and intangibles, property, plant and equipment, investment property, assets held-for-sale, available-for-sale financial assets and investments in joint venture 2 Stock, debtors and creditors < 1 year 3 Excludes profit/loss on disposals, net pension income, impairment and provision for onerous contracts and other items that do not relate to the Group s principal activities on an ongoing basis 4 Lease costs capitalised on a multiplier of 10x 5 Half year calculated on rolling 12 month basis 35

36 Return on capital employed (ROCE) * 10.3% 10.4% 10.4% 9.8% 8.2% 7.3% 7.8% 5.6% 5.3% 2009/ / / / / / / / /18 H1** * 2009/10 to 2015/16 are based on a 14x lease multiplier. 2016/17 onwards based on a 10x multiplier. ** Half year calculated on rolling 12 month basis 36

37 Funding maturity profile m 1, RCF Sterling bond Euro bond * * Notional value of facilities 37

38 2017/18 guidance unchanged 2017/18 Net new space sales c.(0.2)% Depreciation 420m to 430m Interest 75m to 80m Capital expenditure 450m to 500m Net debt Below 1bn Underlying tax rate 24% Onerous capital payments c. 100m 38

39 Capital allocation framework Investing in maintaining estate and reducing cost Maintaining debt ratios to support investment grade rating Investing for profitable growth Paying dividends in line with stated policy Returning surplus capital to shareholders 39

40 Sales area and store numbers Stores Sales area (000s sq. ft.) Number Estate at 29 January , New openings - - Extensions - - Closures - - Estate at 30 July , Store sizes (000s sq. ft.) > <15 Number of supermarkets Total space 2,355 8,538 2,

41 Supplementary financials 30 July January 2017 Number of shareholders 42,437 42,308 Number of shares in issue (m) 2,354 2,336 Dividend 2017/ / /16 Interim 1.66p 1.58p 1.50p Final 3.85p 3.50p Total 5.43p 5.00p Dividend dates Ex dividend 28 September 2017 Record 29 September 2017 Payment 6 November

42 Financial calendar 2017/18 Date Q3 trading statement 2 November 2017 Christmas trading statement 9 January 2018 Financial year end 4 February 2018 * Preliminary results announcement 14 March 2018 * 2017/18 is a 53 week year 42

43 43