Preliminary Results 52 weeks to 3 February March Sir Ken Morrison CBE Chairman. Bristol - Harcliffe

Transcription

1 Preliminary Results 52 weeks to 3 February March Sir Ken Morrison CBE Chairman Bristol - Harcliffe

2 Agenda 2 Introduction Sir Ken Morrison Financial review & balance sheet Richard Pennycook Business & operating review Marc Bolland Q&A Overview 07/08 3 Encouraging growth in sales and profits Operating Profit * 580m (2006/07: 385m) Optimisation Plan going well Recommended final dividend of 4.125p - total dividend of 4.8p (20% increase) Board changes: David Hutchinson retired June 2007 Sir Ian Gibson appointed new Chairman * excluding property transactions

3 Overview 07/08 4 Competition Commission inquiry Provisional findings suggest little impact on our business Competition test could provide some opportunity OFT milk pricing review Safeway liability agreed Board rejects OFT claims re Morrisons 5 Richard Pennycook Group Finance Director Wednesbury

4 Financial summary 6 07/08 06/07 Turnover 12,969 12,462 4% Operating profit* % Net finance costs - (54) Profit on property related transactions PBT % Net debt % Dividend 4.8p 4.0p 20% Underlying earnings per share 14.4p 8.3p 73% * excluding property transactions Underlying earnings / /07 PBT reported Underlying adjustments; profit on property related transactions (32) (38) net pension income (IFRS 19) (17) (7) Underlying PBT % Normalised tax at 32% (180) (104) Underlying PAT Number of shares (m) 2, ,657.5 Underlying EPS

5 Operating profit 8 Gross profit Other operating income Administrative expenses Operating profit* 07/08 % (268) (2.0) /07 % (272) (2.2) * excluding property transactions Turnover bridge ,969 12, /07 53rd Week Disposals Like for Like New Stores Fuel Volume Fuel Price 2007/08

6 Profit bridge* /07 53rd week New stores Like for like stores Store efficiency Distribution Margin Pay Marketing Energy inflation One off gains Financing costs Other 2007/08 * excluding property transactions Cash flow 11 07/08 06/07 Cash flow from operations m Proceeds from disposals Capital expenditure (402) (257) Sale and issue of shares 17 5 Tax, interest, servicing of finance (128) (109) Dividends (108) (98) Cash flow Opening net debt Closing net debt , m

7 Outcome of the balance sheet review 12 Prerequisites Clear business strategy Fix the credit rating Fix pensions Solid progress over past three years 13 Strong profit recovery Debt peaked at 1.6bn in 2004 Over 1bn reduction in net debt since Net debt: EBITDA 0.6 Pension scheme deficits largely fixed

8 Pensions /6 Deficit of 416m Equities of 77% Mortality assumption male aged years 2007/8 Deficit of 68m Equities of 54% Mortality assumption male aged years Mortality assumptions have increased scheme liabilities by 130m Fully funded by the company, after a further 100m contribution planned for 2008/9 Recommendations right for Morrisons 15 Allow for the group s foreseeable funding needs Operational control of properties Strong investment grade balance sheet Most prudent in the sector on all key measures

9 Summary of strategy 16 A progressive dividend 20% increase and three times cover today Continue to grow by underlying eps and ease cover to sector average A capital return 1bn share buyback through 2008 and 2009, funded out of existing facilities First 500m in the coming 12 months Property JV No action, but keep property market under review 17 Marc Bolland Chief Executive Chippenham

10 Morrisons Strategy 18 Our vision Food Specialist for Everyone Our brand values Fresh, Value and Service Optimisation plan Strongly improve operating margins whilst shaping for growth Market background 19 Economic climate seeing downturn in consumer confidence significant price increases in staple products but competitive environment results in relatively low food inflation Trends in food retailing continue consumers increasingly searching for value interest in health, quality, provenance and freshness growing importance of premium ranges

11 Sales performance 20 Group like for like H1 2007/08 H2 2007/08 52 weeks ended 3 February 2008 Sales ex fuel 2.7% 6.3% 4.6% Sales - inc fuel 2.3% 7.5% 5.0% Customers 0.6% 4.6% 2.6% Other metrics Sales per customer ( ) Sales ( per sq. ft.) Customer footfall % % 3.1% % FY H1 Q3 Q4 LFL LFL Customer customer numbers 07/08 07/08 Customer basket size same as existing customers Younger profile We are attracting different types of customers

12 Regionality and store size South and Scotland show strongest sales growth H2 YOY 22 South and Scotland show highest footfall growth in H2-7.7% and 9.7% respectively 2006 Small stores low sales density Bigger conversions below core stores sales densities Core stores negative growth 2008 Small stores highest sales density Bigger conversions densities now in line with core stores Core stores positive growth We are attracting customers in different areas Range development 23 Over 8,000 lines relaunched during the year The Best - 25% increase in sales Eat Smart - 35% increase in sales Kids Smart - new range launched Organics - 14% growth in Sales Fairtrade doubled in sales

13 In store 24 Rebranding all external rebranding complete Refresh programme contemporary look and feel internal signage complete in140 stores Visibility on track to complete by July 2008 in-store prepared products and craft skills new prepared for you in this store labels on all 1,700 in-store prepared lines In store 25 Segmentation of range implemented flexed for demographics, region, ethnicity, competition up to 16% difference in range for similar sized stores Review of macro space on track reduction in space for grocery, frozen increased space for fresh, health & beauty, home & leisure rolled out to 50 stores Range of initiatives to reduce labour costs 63m savings in 2008 self-scan checkouts rolling out to 200 stores All in store projects on track

14 Advertising Fresh in store food preparation and provenance 26 Value keen pricing and great offers Share of voice 17% /08 Promotional participation same as 2006/07 Customers liked what they saw in store and came back Freshness 27 Who s known for fresh? Morrisons 13% Asda -7% Tesco -8% Sainsbury -16% Change in customer perception % May 07 v Jan 08 Source: Hall & Partners Brand Tracker

15 Freshness & service Who prepares more food fresh in-store than any other supermarket? 28 Morrisons 18% Asda -10% Tesco -6% Sainsbury -10% Change in customer perception % May 07 v Jan 08 Source: Hall & Partners Brand Tracker Value perception 29 Provides Good Value for Money Morrisons 5% Asda -3% Tesco -3% Sainsbury -5% Change in customer perception % May 07 v Jan 08 Source: Hall & Partners Brand Tracker

16 CSR commitments Environment - good progress being made towards our CSR targets: 30 CSR commitments Supporting British farmers 31 Only British retailer to be totally British 100% British fresh meat processed in house We are close to farmers

17 CSR commitments Environment good progress being made towards our CSR targets Supporting British farmers Carrier bag reduction Carrier bag use is down by 13% over the last 12 months For one week in May we will give away 10m reusable Morrisons carrier bags to our customers 32 Store space 2007/08 286k sq. ft. of new sales space. 8 stores opened 32k sq. ft. of net sales extensions 18 warehouse extensions 2008/09 8 stores planned 100k sq. ft. of additional extension space 33 On track to deliver 1m sq. ft. over 3 years

18 Distribution Reducing cost and environmental impact of Distribution Short term Tamworth depot closed new depot serving South West opened at Swindon in July 2.9 million fuel miles saved through closing Tamworth 3.5 million miles saved in total 34 Cost per case reduced by 9.4% Longer term new South East RDC site secured in Sittingbourne new South West RDC site plans advancing Other initiatives - progress update Manufacturing new abattoir at Spalding opens July 2008 site acquired for new fruit and vegetable packhouse in South West IT HP selected as hardware supplier Oracle chosen as primary software supplier new HR & payroll system live in 2008 Organisation top team now complete staff discount scheme launched November 35 All initiatives on track

19 Summary 36 Strong year LFL sales up 4.6% Operating profit up 51% Healthy cash flow New balance sheet strategy Management team in place Customer perception improving All key initiatives on track 37 Business is on track to deliver optimisation plan Strongly improve operating margins.whilst shaping for growth

20 Optimisation plan - investment requirements 39 A three year additional programme In store Manufacturing Distribution IT Total investment 2007/ In addition to normal annual capex, including new space, of 400m

21 Optimisation plan - financial goals 40 Impact on operating profit vs. 05/06 Gross margin In store efficiency benefits Manufacturing Distribution Centre Total incremental benefit 06/ Optimisation 1 07/ Optimisation 2 07/ total = 460 Stores analysis 41 Estate at 4 February 2007 Systems conversions 6 Morrisons 362 Group 368 New openings Conversions (6) 6 - Replacements - (1) (1) (6) 13 7 Estate at 3 February Total sales area (m sq. ft.) 10.8 Freeholds and long leaseholds 92% Petrol filling stations 285

22 Sales performance 42 Sales ex fuel Sales - inc fuel Customers Other metrics Sales per customer ( ) Sales ( per sq. ft.) 52 weeks ended 3 February % 5.0% 2.6% Group like for like 53 weeks to 4 February % 6.0% 4.3% Profit and loss account 43 07/08 06/07 (52 weeks) 06/07 (53 weeks) Turnover 12,969 12,230 12,462 Gross profit Other operating income Administrative expenses (268) (266) (272) Profits on property related transactions Operating profit Net finance income / (cost) - (53) (54) Profit/(loss) before tax

23 Finance costs 44 Interest payable Less: capitalised Interest receivable Other finance costs Net pension liability income Fair value movements on derivatives Net finance income (cost) 07/08 (54) 8 (46) 35 (7) (18) /07 (65) 6 (59) 13 (11) (57) 7 (4) (54) Balance sheet 45 Fixed assets and investments Working capital Pensions deficit Net debt Net assets Gearing Interest cover Dividend cover - underlying 07/08 6,683 (1,694) (68) (543) 4,378 12% /07 6,586 (1,689) (198) (772) 3,927 20%

24 Movement in net debt 46 Cash flow Non-cash movements Total movement Opening net (debt) / cash Closing net debt 07/ (772) (543) 06/ (27) 376 (1,148) (772) Tax reconciliation 47 Profit before tax Tax charge at 30% Effect of: Normal tax adjustments Divestment profits not taxable Resolution of prior period computations Deduction for additional pension contribution Impact of tax rate change on deferred tax Tax charge for the period (11) (124) (30) (32) (31)

25 Peer group comparisons at Feb Adjusted net debt*/ebitdar Feb x Fixed charge cover** FY07 end FY x 2.0x 1.0x 2.0x 5.6x 7.5x Sainsbury Tesco WMS At the end of FY08, Morrisons is conservatively geared when compared to its UK peers in food retail This will still be the case after implementation of our new balance sheet strategy Source Company accounts Optimisation plan 1 - status 49 Impact on Operating Profit vs. 05/06 Gross margin In store efficiency benefits Manufacturing Optimisation 1 Delivery 07/08 Status 110 a 90 a - - Distribution Centre Total incremental benefit Optimisation plan 1 delivered in full a a a

26 Optimisation plan 2 - status 50 Impact on Operating Profit vs. 05/06 Gross margin In store efficiency benefits 07/10 target Optimisation 2 Progress /08 Delivery Main Initiatives Micro / Marco space Self scan / SRP Manufacturing 15 - New abattoirs 08 Distribution Southern distribution Centre 10 - Systems efficiencies Total incremental benefit Well on track with optimisation plan 2 targets CSR Commitments 51 Environment - good progress being made towards our CSR targets: 36% reduction 8% reduction 15% reduction 15% reduction 25% to date 5% to date 10% to date 7% to date Carbon Footprint Group energy use Water use Own brand packaging