Interim Results 12 September 2019 26 weeks to 4 August 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 first half • Improving the shopping trip – Invested in the customer offer – Improved price competitiveness • Maintained turnaround momentum – Meaningful/sustainable growth – Grew LFL, profit, ROCE, cash flow and another special dividend – Modest, sustainable two to three year like-for-like • Building a broader, stronger Morrisons 6
Wholesale 7
Wholesale Rontec - Bilston MPK Garages - Wetley Rocks, Stoke-on-Trent Sandpiper - Five Oaks, Jersey McColl’s Conversion - Manchester 8
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 9
Be more competitive 10
Be more competitive 11
Be more competitive SUPREME CHAMPION 12
Serve customers better Customer satisfaction Online coverage Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Aug-19 13
Find local solutions 14
Lake, Isle of Wight Before After 15
Develop popular and useful services Rapid Charger Doddle Kiosk Hand Car Wash 16
Simplify and speed up Many more years of productivity and cost saving opportunities... • Investing in the shopping trip, improving competitiveness • Stocking more of what customers want to buy • Improving in-store stock holding, waste, markdown, availability • Improving the supply chain ...And still a lot to go for 17
Make core supermarkets strong again Canning Town Bolsover Oswestry Folkestone 18
Sustainable growth • Listening and responding to customers • Building a broader, stronger Morrisons • Capital light growth • Modest, sustainable two to three year like-for-like • Our differences make us distinct...great products, British, local, manufacturing, 'Morrisons makes it', the Morrisons price list, market street, highly skilled colleagues 19
Trevor Strain CFO
Overview H1 2018/19 1 H1 2019/20 Ex-fuel sales growth 0.3% 5.3% Profit before tax and exceptionals 2 - £m 198 188 5.3% Return on capital employed 3 7.1% 7.0% Adjusted free cash flow 4 - £m 211 181 Net debt : EBITDA 3 2.3x 2.3x Ordinary interim dividend - pence 1.93p 1.85p Special interim dividend - pence 2.00p 2.00p Total interim dividend - pence 3.93p 3.85p - year-on-year 2.1% 132% 1 Restated for IFRS 16 - lease accounting 2 Profit before tax, exceptional items and net pension interest 3 Based on a rolling 12 month basis 4 Free cash flow before capital returns, disposal proceeds, operating working capital, onerous payments and non-cash movements 21
Sales 2018/19 2019/20 Like-for-like (ex-VAT) H1 FY Q1 Q2 H1 Group: Sales ex-fuel % 4.9 4.8 2.3 (1.9) 0.2 Sales inc-fuel % 4.2 4.3 2.7 (2.2) 0.2 Sales £m +0.4% 12 8,831 14 5 8,800 H1 2018/19 Net new space Like-for-like Fuel H1 2019/20 22
Exceptional items H1 2018/19 1 £m H1 2019/20 Profit/(loss) on disposals and exit of properties - (1) Costs associated with the repayment of borrowings - (33) Net pension interest 10 8 Other exceptional items (6) (26) Total exceptional credit/(charge) 4 (52) 1 Restated for IFRS 16 – lease accounting 23
Profit H1 2018/19 1 £m H1 2019/20 Reported operating profit 246 219 Reported profit before tax 202 136 H1 2018/19 1 £m H1 2019/20 Operating profit before exceptionals 252 246 EBITDA margin before exceptionals 5.8% 5.6% 20bps Profit before tax and exceptionals 2 198 188 5.3% 1 Restated for IFRS 16 – lease accounting 2 Profit before tax, exceptional items and net pension interest 24
A broader, stronger business £75m - £125m incremental profit target: – Wholesale – Popular and useful services Cumulative £61m – Lower interest – Morrisons.com 25
Balance sheet £m Pension Surplus £m Cash Capex 1,020 751 688 594 c.550 520 500 272 461 419 186 365 -11 -39 1 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 H1 2019/20 ROCE Net Debt (pre-IFRS 16) £m Lease adjusted on Post-IFRS 16 Basis a 14x multiplier 8.2% 2,817 7.1% 6.9% 6.7% 2,340 6.3% 5.6% 5.3% 1,746 1,194 997 973 975 2 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 H1 2019/20 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 H1 2019/20 1 2019/20 full year guidance 2 Half year calculated on rolling 12 month basis 26
Cash flow Adjusted Free Cash Flow 1 £m FY 323 271 271 218 211 198 H1 181 2 2 2014/15 2015/16 2016/17 2017/18 2018/19 H1 2019/20 1 Before capital returns, disposal proceeds, operating working capital, onerous payments and non-cash movements 2 Restated for IFRS 16 – lease accounting 27
2019/20 guidance Net new space sales 1 0.0% Depreciation 2 £530m - £540m Net finance costs before exceptionals 2 £105m - £110m 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 1 Includes four proposed store closures 2 Adjusted for IFRS 16 – lease accounting 28
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 29
Appendices 30
Financial summary H1 2018/19 1 £m H1 2019/20 Revenue 8,831 8,800 0.4% Statutory operating profit 246 219 Net finance costs (44) (84) Share of profit from joint venture - 1 Statutory profit before tax 202 136 Profit before tax and exceptionals 2 198 188 5.3% Earnings per share before exceptionals 3 6.38p 6.13p Net debt 2,358 2,355 Total interim dividend 4 3.93p 3.85p 2.1% 1 Restated for IFRS 16 – lease accounting 2 Profit before tax, exceptional items and net pension interest 3 Profit before exceptional items and net pension interest, adjusted for a normalised tax charge divided by weighted average number of shares 4 Includes special interim dividends of 2.00p in 2019/20 and 2.00p in 2018/19 31
Earnings per share (EPS) before exceptionals H1 2018/19 1 £m H1 2019/20 Profit before tax and exceptionals 2 198 188 Normalised tax charge at 23.5% (2018/19: 23.5%) (46) (44) Profit before exceptionals and after tax 3 152 144 Weighted average number of shares (m) 2,375 2,350 EPS before exceptionals 4 6.38p 6.13p Total interim dividend 5 3.93p 3.85p 1 Restated for IFRS 16 – lease accounting 2 Profit before tax, exceptional items and net pension interest 3 Profit before exceptional items and net pension interest, adjusted for a normalised tax charge 4 Profit before exceptional items and net pension interest, adjusted for a normalised tax charge divided by weighted average number of shares 5 Includes special interim dividends of 2.00p in 2019/20 and 2.00p in 2018/19 32
Finance costs H1 2018/19 1 £m H1 2019/20 Interest payable (22) (27) Interest payable on lease obligations (32) (33) Interest capitalised 1 1 Provisions: unwinding of discount (1) (1) Other finance costs (1) (1) Finance costs before exceptionals (55) (61) Other finance income 1 2 Net finance costs before exceptionals (54) (59) Costs associated with repayment of borrowings - (33) Net pension interest 10 8 Net finance costs (44) (84) 1 Restated for IFRS 16 – lease accounting 33
Balance sheet H1 2018/19 1 £m H1 2019/20 Fixed assets and investments 2 8,543 8,578 Working capital 3 (2,067) (2,081) Provision and tax (526) (570) Net pension asset 751 834 Net debt (2,358) (2,355) Net assets 4,343 4,406 Key metrics: Interest cover 4 4.7x 4.4x Net debt : EBITDA 4 2.3x 2.3x Gearing 54% 53% ROCE 4 7.1% 7.0% 1 Restated for IFRS 16 – lease accounting 2 Including goodwill and intangibles, property, plant and equipment, right-of-use assets, investment property, assets held-for-sale, investments in joint venture, and finance lease receivables 3 Stock, debtors and creditors < 1 year 4 Half year calculated on rolling 12 month basis 34
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