[PPT] - Preliminary Results 13 March 2019 52 weeks to 3 February 2019 1 PowerPoint Presentation

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Preliminary Results

13 March 2019

52 weeks to 3 February 2019

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Andrew Higginson Chairman

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David Potts CEO

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Fix, Rebuild and Grow

PHASE 1: FIX Stable LFL Improve capability Operate at lower cost PHASE 2: REBUILD Six priorities to improve the shopping trip Gain consistency and confidence PHASE 3: GROW A broader business creating value

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Six, Five, Four

To be more competitive To serve customers better Find local solutions Develop popular and useful services To simplify and speed up the

rganisation

To make the core supermarkets strong again

6 priorities 5 ways of working

Customers first Teamwork Freedom in our framework Listening and responding Selling, controlling costs, growing profits and removing wasted effort

4 stakeholders

Customers Colleagues Suppliers Shareholders

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Positive LFL
Strongest ex-fuel sales growth for nine years
Profit growth of 10% on a 52-week basis
Low debt, strong balance sheet and cash flow
12.60p total dividend
Customer satisfaction continues to improve
Annualised wholesale sales exceeded £700m early
Morrisons.com available to 75% of households
Surpassed 1,000 new service points
Successfully opened three new stores

The last 12 months

* Ex-fuel, ex-VAT

0% 1% 2% 3% 4% 5% 6% 7% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Group like-for-like sales*

2016/17 2018/19 2015/16 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19

Customer satisfaction

2017/18

+20%

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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

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Be more competitive – Morrisons Makes it

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Be more competitive – Morrisons Makes it

Oven Fresh Deli Fishmonger Butcher

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Be more competitive – Flaxby investment

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Be more competitive – own brand

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Be more competitive

Supermarket

f the Year

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Serve customers better

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Find local solutions

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Develop popular and useful services

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Morrisons Daily

Wholesale Customers

Rontec
Sandpiper CI
MPK Garages
McColl’s

Morrisons Forecourts

Capital light
Rebuild
Extend
Refit
Operating costs
Store layout
Range
Merchandising
Promotions
Planning
Logistics

Shared Learnings / Formulaic

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Simplify and speed up

Wholesale convenience picking centre locations

Site 3 Site 2

Swan Valley, national distribution campus

Site 1

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Make core supermarkets strong again

Food To Go Nutmeg Home & Leisure Party Garden Centres Toys

Tynemouth

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Make core supermarkets strong again

Wood Green St Ives, Cambridgeshire

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Wholesale supply

Sandpiper CI – Morrisons Daily Rontec – Morrisons Daily McColl’s

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Wholesale supply

MPK Garages MPK Garages - Safeway Daily Morrisons own forecourts

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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

Meaningful and sustainable growth

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Trevor Strain CFO

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2018/19 2017/18 Ex-fuel sales growth1 5.1% 2.5% Profit before tax and exceptionals2

£m

406 374

year-on-year

8.6% 11.0% Profit before tax and exceptionals2

£m (52 weeks)

406 369

year-on-year

10.0% 9.5% Return on capital employed3 7.9% 7.7% Free cash flow

£m

265 350 Lease adjusted net debt3 : 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%

Overview

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

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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)

Sales

* Excludes Morrisons.com sales through CFCs

17,262 16,944 17,735 (318) 46 636 109

2017/18 53rd week 2017/18 52-week basis Net new space Like-for-like Fuel 2018/19 Sales £m

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£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 £m – comparable 52-week basis 2018/19 2017/18 Operating profit before exceptionals 465 440 Profit before tax and exceptionals* 406 369

Profit

* Defined as profit before tax, exceptional items and net pension interest

10.0% 8.6%

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£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)

Exceptional items

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£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 £m – comparable 52-week basis 2018/19 2017/18 Operating profit before exceptionals 465 440 Profit before tax and exceptionals* 406 369

Profit

* Defined as profit before tax, exceptional items and net pension interest

10.0% 8.6%

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A broader, stronger business

£75m - £125m incremental profit target:

–

Wholesale

–

Popular and useful services

–

Lower interest

–

Morrisons.com Cumulative £54m

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477 594 552 221 24 2014/15 2015/16 2016/17 2017/18 2018/19

Cash flow summary

Change in net debt £m

785 854 670 350 265 2014/15 2015/16 2016/17 2017/18 2018/19 203 215 292 252 296 2014/15 2015/16 2016/17 2017/18 2018/19

Free cash flow

(movement in net debt adjusted for capital returns)

Free cash flow

(before capital returns, disposal proceeds, operating working capital and onerous payments)

Cumulative: £785m £1,639m £2,309m £2,659m £2,924m

Net debt: £2,340m £1,746m £1,194m £973m £997m £m £m

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Net debt remains low
Strong maturity profile
Pension surplus increased
Partial buy-in of Safeway pension scheme liabilities
Retirement Saver pension scheme closed

Balance sheet

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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

IFRS 16

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Net new space sales 0.1% Depreciation £470m - £480m* Net finance costs before exceptionals c.£55m* 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

2019/20 guidance

* Pre IFRS 16

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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

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The plan

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

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Appendices

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£m 2018/19 2017/18 Revenue 17,735 17,262 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 exceptionals1 406 374 Earnings per share before exceptionals2 13.17p 12.19p Net debt 997 973 Total dividend 12.60p 10.09p

Financial summary

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

24.9% 8.6% 2.7%

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Earnings per share (EPS) before exceptionals

£m 2018/19 2017/18 Profit before tax and exceptionals1 406 374 Normalised tax charge at 23.5% (2017/18: 23.8%) (95) (89) Profit after tax and before exceptionals2 311 285 Weighted average number of shares (m) 2,357 2,339 EPS before exceptionals2 13.17p 12.19p Total dividend3 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

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Finance costs

£m 2018/19 2017/18 Interest payable (51) (65) Interest capitalised 1 1 Provisions: unwinding of discount (13) (13) Other finance costs (1) (1) Finance costs before exceptionals (64) (78) Other finance income 4 5 Net finance costs before exceptionals (60) (73) Costs associated with repayment of borrowings (33) (16) Net pension interest income 18 9 Net finance costs (75) (80)

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Balance sheet

£m 2018/19 2017/18 Fixed assets and investments1 7,828 7,761 Working capital2 (2,025) (2,045) Provisions and tax (863) (792) Net pensions asset 688 594 Net debt (997) (973) Net assets 4,631 4,545 Key metrics: Interest cover 6.8x 6.1x Net debt : EBITDA 1.1x 1.1x Lease adjusted net debt3 : EBITDAR 2.1x 2.1x Gearing 22% 21% ROCE3 7.9% 7.7%

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 Lease costs capitalised on a multiplier of 10x

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£m 2018/19 2017/18 Cash flow from operations 842 884 Capital expenditure (461) (500) Tax and interest (129) (136) Purchase of own shares (9) (4) Joint venture dividends 7 8 Proceeds and payments to settle share-based incentive schemes 15 26 Debt acquired on acquisition of business (2)

Costs incurred on repayment of borrowings

(30) (17) Proceeds from disposals 22 108 Dividends (289) (129) Other non-cash movements 10 (19) Movement in net debt (24) 221 Opening net debt (973) (1,194) Closing net debt (997) (973) Free cash flow before capital returns, disposal proceeds,

perating working capital and onerous payments

296 252

Cash flow

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10.3% 10.4% 10.4% 9.8% 8.2% 5.6% 5.3% 7.3% 7.7% 7.9%

2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Return on capital employed (ROCE)*

* 2009/10 to 2015/16 based on a 14x lease multiplier, 2016/17 onwards based on a 10x multiplier

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3 February 2019 4 February 2018 Number of shareholders 39,090 41,444 Number of shares in issue (m) 2,368 2,356 Dividend 2018/19 2017/18 2016/17 Interim ordinary 1.85p 1.66p 1.58p Interim special 2.00p

Final ordinary

4.75p 4.43p 3.85p Final special 4.00p 4.00p

Total

12.60p 10.09p 5.43p Dividend dates Ex dividend 23 May 2019 Record 24 May 2019 Payment 1 July 2019

Supplementary financials

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Financial calendar

2019/20 Date Q1 trading statement 9 May 2019 AGM 13 June 2019 Half year end 4 August 2019 Interim results announcement 12 September 2019 Q3 / Christmas trading statement 7 January 2020 Financial year end 2 February 2020

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