Preliminary Results
52 weeks ended 1 February 2009
12 March 2009
2
Sir Ian Gibson
Chairman
Agenda
3
• Introduction
–
Ian Gibson
• Results
–
Richard Pennycook
• Business highlights
–
Marc Bolland
• Q&A
Overview 2008/09
• Continuing growth in sales and profits
• Underlying profit* up 13% to £636m
• Total dividend of 5.8p – up 21%
• Board changes
– Roger Owen – retired January 2009
– Philip Cox – appointed with effect from 1 April 2009
• Optimisation Plan going well
* Excluding property transactions and IAS 19 pension interest
4
5
Richard Pennycook
Group Finance Director
Financial summary
£m
6
2008/09
2007/08
14,528
12,969
12%
Operating profit*
669
580
15%
Net finance costs
-16
-
2
32
Profit before tax
655
612
Net debt
642
543
Turnover
Profit on property related transactions
* Excluding property transactions
7%
Underlying earnings
£m
7
2008/09
2007/08
655
612
-2
-32
• Net pension income (IAS 19)
-17
-17
Underlying profit
636
563
Tax (normalised 2007/08 30%)
-195
-180
Underlying profit after tax
441
383
Number of shares (m)
2,645
2,664
Underlying basic eps
16.7
14.4
16%
Dividend per share
5.8p
4.8p
21%
2.9
3.0
PBT reported
Underlying adjustments
• Profit on property related transactions
Dividend cover
13%
Operating profit
8
2008/09
2007/08
£m
%
£m
%
– H1
436
6.1
370
6.2
– H2
477
6.4
448
6.4
– Total
913
6.3
818
6.3
Other operating income
37
0.2
30
0.2
Administrative expenses
-281
-1.9
-268
-2.0
Operating profit*
669
4.6
580
4.5
Gross profit
* Excluding property transactions
Turnover bridge
9
£m
7.9%
273
346
726
14,528
214
12,969
07/08
New stores
Like for like
growth
Fuel price Fuel volume
08/09
Cash flow
£m
10
2008/09
2007/08
1,064
856
-100
-100
22
94
-678
-402
3
17
Shares repurchased
-146
-
Tax, interest, servicing of finance
-133
-128
Dividends
-131
-108
Cash flow
-99
229
Opening net debt
543
772
Closing net debt
642
543
Cash flow from operations
Special pension contribution
Proceeds from disposals
Capital expenditure
Sale and issue of shares
24%
Optimisation plan 2 - status
11
Impact on EBITDA vs. 05/06
£m
Actual delivery
07/08
08/09
To date
Gross margin
44
18
62
100
In store efficiency benefits
23
12
35
50
-
5
5
15
38
2
40
25
-
3
3
10
Total incremental benefit
105
40
145
200
Total capital investment
68
182
250
450
Manufacturing
Distribution
Centre
Total target
Capital plans
12
2009/10 projection
£m
Completion of Optimisation Plan
200
Organic space growth
350
Co-op/Somerfield acquisition
320
Other normal capex
230
Total investment plan
1,100
13
Marc Bolland
CEO
The Morrisons journey
2006 Morrisons/Safeway
• Strong retail skills
• Consumer perception still weak
2007 strategy: ‘Food specialist for everyone’
• Optimisation Plan target: improve operating margin whilst shaping for growth
• Focus on fresh, value and service
2008 year of strong growth
• Our performance brought us closer to our vision
14
Sales performance
15
Group like for like
52 weeks ended
1 February 2009
52 weeks ended
3 February 2008
Sales – exc. fuel
7.9%
4.6%
Sales – inc. fuel
11.1%
5.0%
4.2%
2.6%
Sales per customer (£)
£23.92
£23.07
Sales (£ per sq. ft.)
£21.65
£20.31
Customers
Other metrics
Regional performance
Total grocery sales exc. fuel 2008/09
16
9.1%
South
11.1%
London
18.6%
Scotland
12.7%
Source TNS: Grocery Till Roll 52we 25 January 2009
• Good performance across the whole country
• Particularly strong in the South
(especially London) and Scotland
Customers
17
Customer switching to Morrisons
Main competitor 1
Main competitor 2
Main competitor 3
Premium segment
Discounter
segment
Source TNS: Grocery Till Roll 52we 25 January 2009
£25m
Net switching £m
£50m
Customers
18
Growing younger customers
17.1%
Customer growth %
14.8%
Broader appeal
Pre-family
Source TNS: Grocery Till Roll 52we 25 January 2009
Young family 0-4 Years
Category performance
19
Like for like sales growth %
11.1%
11.4%
Salad bar
Butchery
9.8%
10.9%
10.9%
Bakery &
cake shop
Pre packed
fresh food
7.9%
Group
Source: internal data
Pizza
Optimisation plan update – key building blocks
Manufacturing
• Spalding abattoir opened in Q2
• Vegetable pack house at Flaxby extended and re-opened in Q4
Completed
Distribution
• Drive time planning systems implemented
• New South East RDC in Sittingbourne
– operational by end of calendar year 2009
• New South West RDC in Bridgewater, Somerset
– planning application filed December 2008
On track
20
Optimisation plan update – key building blocks
New retail space
• 2008/09:
– 9 stores opened
– 207k sq. ft. of net new sales space
– 90k sq. ft. of net sales extensions
• 3 year programme:
– 1m sq. ft. by Jan 2010
On track
21
Optimisation plan update – key building blocks
IT system replacement
• Development team is in place
• Payroll and HR systems were launched in Q4
• Roll out of new financial systems, distribution systems and EPOS systems this year
On track
22
Optimisation plan update – key building blocks
• In-store
• Finished by July 2008:
– range segmentation
– refresh
– shelf-ready packaging
• Rollout started:
– IQM system
– self scan checkouts
On track
23
Optimisation plan update – key building blocks
Range Development
• ‘Value’
• ‘Fresh Ideas’
• Non-food
24
Optimisation plan update – key building blocks
CSR
• We are the only grocery retailer that has
been awarded the new Carbon Trust
Standard for carbon reduction
On track
25
Optimisation plan update
• The target
• “Strongly improve operating margin whilst shaping for growth”
• Where we are now
– improving our operating margin
– shaping building blocks
– growing like for like sales
Our strategy is working for us
26
Current market background
• Food market so far resilient to recession
• Consumers switching stores and products more than ever before to help their
budgets stretch further
• Consumers choosing to dine and cook more at home
• Consumers buying more convenience food
• Consumers interested in treats
• Consumers still care about fresh and healthy food but less interested in ethical
foods
27
Morrisons points of difference
Vertical integration
• Industry leading availability
• Flexibility/competitive pricing
• Industry leading food deals
28
Morrisons points of difference
Market Street
• Fresh Food Academy
• Fresh value food products
Innovative value promotions
•
•
•
•
Industry leading deals
Sun media promotion
Collector Card scheme
‘Let’s Grow’ campaign
29
Opportunities – new customers
• Our perception among new customers has soared over the last 2 years
• New customers like our unique Market Street shopping experience, our fresh food
and the great value we offer
• We have strongly grown customer numbers but 40% (10m) of households have
not yet been in one of our refreshed stores
Big potential to attract new customers
30
Opportunities - new locations
31
• 382 stores (11.1m sq. ft.)
• We are a national company but we are not yet
nationwide
• There are approximately 25m households living in
the UK
• 16.6m (66%) households live within 15 minutes
drive of our stores
8.4m (34%) households do not have the
same access to any of our existing stores
Opportunities - smaller stores
• 60 stores (11k - 20k sq. ft.) - 16% of
our estate
• Highest sales density growth
• Higher fresh food participation than standard stores
• Recently developed Northallerton, Blandford, Gorleston &
Clifton (all 11k-18k sq. ft.) with full Market Street
• Bespoke range and segmentation
• Out of town, edge of town and in town
Not convenience shops but convenient shopping
32
Potential new representation to become
nationwide
33
• We now have the flexibility to operate a wider
range of stores (10k – 40k+ sq. ft.)
• We can now reach many more places and
households
• The blue areas represent more than 100
potential new sites for bigger and smaller stores
Our focus
34
• Morrisons is currently under represented in key areas nationwide
Focus in the coming years will be on space growth
“National”
to “Nationwide”
Integration of Co-op/Somerfield stores in 2009/10
35
• Co-op/Somerfield stores
– c.500k sq. ft. of new sales space this year
– An extra 1.2m (5%) households within 15 mins
drive of these stores
– Largest number in the South East, Greater
London & the South West
– We will use the knowledge from our recent
rebuilds, spending £2.5m per store
Space growth
36
• We will accelerate growth from 350k to 500k sq. ft. in 2010/11
Space growth
Sq. ft.(‘000)
Optimisation Plan to date
650
2009/10: c.10 new stores and 75k sq. ft. extensions
350
Optimisation Plan target met
1,000
2009/10: Co-op/Somerfield stores
500
2010/11: additional space growth
500
Additional space growth over 4 years to 2010/11
2,000
Summary
37
• Strong LFL sales exc. fuel up 7.9%
• Underlying profit up 13%
• Healthy cash flow and strong balance sheet
• Dividend growth of 21%
• Morrisons is now embraced by a wider audience
Our strategy is working for us
• Flexibility to develop a wider range of stores
• Opportunity to move from:
“National”
to “Nationwide”
Supplementary Slides
Balance sheet
£m
40
2008/09
2007/08
Fixed assets and investments
7,079
6,683
Working capital
-1,868
-1,694
Pensions deficit
-49
-68
Net debt
-642
-543
Net assets
4,520
4,378
Gearing
14%
12%
Interest cover
41.9
-
Interest cover adjusted*
20.3
34.1
2.9
3.0
Dividend cover - underlying
* Excluding property profits and IAS 19 pension interest
Stores analysis
41
Group
Estate at 3 February 2008
375
New openings
9
Replacements
-2
Estate at 1 February 2009
Total sales area (‘000 sq. ft.)
382
11,131
Freeholds and long leaseholds
92%
Petrol filling stations
287
Depreciation
42
£m
129
153
H1
H2
06/07
163
FY
H1
130
126
H2
07/08
FY
• H2 06/07 & H1 07/08 – accelerated depreciation of branded assets
• H2 07/08 – Safeway structural assets fully depreciated
• H1 08/09 – business as usual
• H2 08/09 – Optimisation Plan investments accelerating
* 06/07 & 07/08 – 26 weeks
290
289
282
H1
160
H2
08/09
FY
Recognition
• Industry recognition
43