Preliminary Results 13 March 2019 52 weeks to 3 February 2019 1
Andrew Higginson Chairman
David Potts CEO
Fix, Rebuild and Grow PHASE 3: GROW A broader business creating value PHASE 2: REBUILD Six priorities to improve the shopping trip Gain consistency and confidence PHASE 1: FIX Stable LFL Improve capability Operate at lower cost 4
Six, Five, Four 6 priorities To be more To serve Find local Develop popular To simplify and To make the core competitive customers solutions and useful speed up the supermarkets better services organisation strong again 5 ways of working Freedom in our Listening and Selling, controlling costs, Customers Teamwork framework responding growing profits and first removing wasted effort 4 stakeholders Customers Colleagues Suppliers Shareholders 5
The last 12 months • Positive LFL Group like-for-like sales * 7% 6% • Strongest ex-fuel sales growth for nine years 5% 4% • Profit growth of 10% on a 52-week basis 3% 2% • Low debt, strong balance sheet and cash flow 1% 0% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 • 12.60p total dividend 2016/17 2015/16 2017/18 2018/19 * Ex-fuel, ex-VAT • Customer satisfaction continues to improve Customer satisfaction • Annualised wholesale sales exceeded £700m early +20% • Morrisons.com available to 75% of households • Surpassed 1,000 new service points • Successfully opened three new stores Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 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 7
Be more competitive – Morrisons Makes it 8
Be more competitive – Morrisons Makes it Butcher Fishmonger Deli Oven Fresh 9
Be more competitive – Flaxby investment 10
Be more competitive – own brand 11
Be more competitive Supermarket of the Year 12
Serve customers better 13
Find local solutions 14
Develop popular and useful services 15
Morrisons Daily • Operating costs Morrisons Forecourts Wholesale Customers • Store layout • Rontec • Capital light • Range • Sandpiper CI • Rebuild • Merchandising • MPK Garages • Extend • Promotions • McColl’s • Refit • Planning • Logistics Shared Learnings / Formulaic 16
Simplify and speed up Site 3 Site 1 Site 2 Swan Valley, national distribution campus Wholesale convenience picking centre locations 17
Make core supermarkets strong again Food To Go Nutmeg Home & Leisure Tynemouth Toys Garden Centres Party 18
Make core supermarkets strong again St Ives, Cambridgeshire Wood Green 19
Wholesale supply McColl’s Sandpiper CI – Morrisons Daily Rontec – Morrisons Daily 20
Wholesale supply MPK Garages MPK Garages - Safeway Daily Morrisons own forecourts 21
Meaningful and sustainable growth • Supermarket growth, modest, sustainable 2 - 3 year range • £75m - £125m incremental profit target • Capital light growth, improving return on invested capital • Differentiation making Morrisons broader, stronger • Emerging new Morrisons 22
Trevor Strain CFO
Overview 2018/19 2017/18 Ex-fuel sales growth 1 5.1% 2.5% Profit before tax and exceptionals 2 - £m 406 374 - year-on-year 8.6% 11.0% Profit before tax and exceptionals 2 - £m (52 weeks) 406 369 - year-on-year 10.0% 9.5% Return on capital employed 3 7.9% 7.7% Free cash flow - £m 265 350 Lease adjusted net debt 3 : EBITDAR 2.1x 2.1x Ordinary dividend - pence 6.60 6.09 Special dividend - pence 6.00 4.00 Total dividend - pence 12.60 10.09 - year-on-year 24.9% 85.8% 1 On a comparable 52 versus 52 week basis 2 Defined as profit before tax, exceptional items and net pension interest 3 Based on a 10x multiplier 24
Sales 2017/18 2018/19 Like-for-like (ex-VAT) H1 H2 FY H1 H2 FY Group Sales ex-fuel % 3.0 2.6 2.8 4.9 4.6 4.8 Sales inc-fuel % 5.2 3.0 4.1 4.2 4.5 4.3 Supermarkets * Sales ex-fuel % 2.1 1.7 1.9 1.9 0.6 1.2 Number of transactions % 3.9 2.0 2.9 1.7 (0.4) 0.7 Items per basket % (6.2) (3.7) (4.9) (1.2) (0.6) (0.9) 109 Sales £m 636 46 17,735 17,262 16,944 (318) 2017/18 53rd week 2017/18 Net new space Like-for-like Fuel 2018/19 52-week basis 25 * Excludes Morrisons.com sales through CFCs
Profit £m 2018/19 2017/18 Statutory operating profit 394 458 Statutory profit before tax 320 380 £m 2018/19 2017/18 Operating profit before exceptionals 465 445 Profit before tax and exceptionals * 406 374 8.6% £m – comparable 52-week basis 2018/19 2017/18 Operating profit before exceptionals 465 440 Profit before tax and exceptionals * 406 369 10.0% * Defined as profit before tax, exceptional items and net pension interest 26
Exceptional items £m 2018/19 2017/18 Impairment and provision for onerous contracts 5 (6) (Profit)/loss on disposals and exit of properties (2) (19) Pension scheme set-up credit - (13) Costs associated with the repayment of borrowings 33 16 Pensions exceptional costs 26 - Other exceptional items 42 25 Net pension interest income (18) (9) Total exceptional charge/(credit) 86 (6) 27
Profit £m 2018/19 2017/18 Statutory operating profit 394 458 Statutory profit before tax 320 380 £m 2018/19 2017/18 Operating profit before exceptionals 465 445 Profit before tax and exceptionals * 406 374 8.6% £m – comparable 52-week basis 2018/19 2017/18 Operating profit before exceptionals 465 440 Profit before tax and exceptionals * 406 369 10.0% * Defined as profit before tax, exceptional items and net pension interest 28
A broader, stronger business £75m - £125m incremental profit target: – Wholesale – Popular and useful services Cumulative £54m – Lower interest – Morrisons.com 29
Cash flow summary £m Change in net debt 24 221 477 552 594 2014/15 2015/16 2016/17 2017/18 2018/19 £1,746m £1,194m Net debt: £2,340m £973m £997m £m £m Free cash flow Free cash flow (movement in net debt adjusted for capital returns) (before capital returns, disposal proceeds, operating working capital and onerous payments) 296 854 292 785 252 670 215 203 350 265 2014/15 2015/16 2016/17 2017/18 2018/19 2014/15 2015/16 2016/17 2017/18 2018/19 Cumulative: £785m £1,639m £2,659m £2,924m £2,309m 30
Balance sheet • Net debt remains low • Strong maturity profile • Pension surplus increased • Partial buy-in of Safeway pension scheme liabilities • Retirement Saver pension scheme closed 31
IFRS 16 • Fully retrospective transition approach • No impact on cash or how we run the business • Estimated profit impact of around £10m • What next? – During Q2 – pro forma 2018/19 financial statements reported on IFRS 16 basis – September 2019 – interim results (including comparatives) prepared on IFRS 16 basis 32
2019/20 guidance Net new space sales 0.1% £470m - £480m * Depreciation c.£55m * Net finance costs before exceptionals Capital expenditure c.£550m Normalised tax rate 23% - 24% Onerous capital payments c.£60m Wholesale supply sales £1bn in due course Net debt To remain low * Pre IFRS 16 33
Capital allocation framework Invest in maintaining estate and reducing cost Maintain debt ratios to support investment grade rating Invest for profitable growth Pay dividends in line with stated policy Return surplus capital to shareholders 34
The plan Operational levers to enhance returns Capital structure levers to enhance returns Volume Asset Margin Optimise assets Capital return growth intensity Dividend Profit growth yield Optimise total shareholder return on basis of robust balance sheet 35
Appendices 36
Financial summary £m 2018/19 2017/18 Revenue 17,735 17,262 2.7% Statutory operating profit 394 458 Net finance costs (75) (80) Share of profit from joint ventures 1 2 Statutory profit before tax 320 380 Profit before tax and exceptionals 1 406 374 8.6% Earnings per share before exceptionals 2 13.17p 12.19p Net debt 997 973 Total dividend 12.60p 10.09p 24.9% 1 Defined as profit before tax, exceptional items and net pension interest 2 Profit before exceptional items and net pension interest, adjusted for a normalised tax charge 37
Earnings per share (EPS) before exceptionals £m 2018/19 2017/18 Profit before tax and exceptionals 1 406 374 Normalised tax charge at 23.5% (2017/18: 23.8%) (95) (89) Profit after tax and before exceptionals 2 311 285 Weighted average number of shares (m) 2,357 2,339 EPS before exceptionals 2 13.17p 12.19p Total dividend 3 12.60p 10.09p 1 Defined as profit before tax, exceptional items and net pension interest 2 Profit before exceptional items and net pension interest, adjusted for a normalised tax charge 3 Includes special dividend of 6.00p in 2018/19 and 4.00p in 2017/18 38
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