Taking Morrisons online

Transcription

1 Taking Morrisons online The Morrisons Difference, Delivered 17 May 2013

2 The Morrisons Difference, Delivered 1

3 1 2 3 Key points for today 1 Why this deal? Online is what customers want now we can serve them there this financial year This model provides us with a clear path to profitability We are bringing our unique affordable fresh proposition to customers homes, leveraging a world-class technology platform 2 How will it work? Customers will have an unmistakably Morrisons experience, from the website through to the service they enjoy at their doorstep Ocado will provide an integrated technology, logistics and distribution solution 3 What will the impact be? Capex: investment on Morrisons.com of 216m Group capex guidance increased to 1.2bn for this FY P&L: incremental 25m additional new business development costs this year 2

4 1 2 3 WHY THIS DEAL? This is a fantastic deal for customers Our unique offer, online: Customers are already shopping online, and now we ll be there for them with a unique offer: Morrisons affordable fresh proposition and their market-leading technology, logistics and delivery platform We ll bring our distinctive Market Street experience online like our butchers, bakers and fishmongers The leading customer experience: We ll start from Day 1 benefitting from 11 years experience: offering a proven, state of the art customer proposition Customers will benefit from the home delivery platform with the highest customer service ratings in the UK 3

5 1 2 3 WHY THIS DEAL? And for shareholders Strong financials: There s a clear path to profitability Lower costs: We benefit from certainty on capital investment, as well as shared infrastructure operating costs Lower risk: We will launch with the confidence and reassurance of 11 years of online experience, so much lower operational risk than going it alone Greater reach: Alongside convenience, it accelerates bringing our offer to London and the South East, reducing reliance on traditional bricks and mortar Defends the core: It protects our bricks and mortar business from online headwinds 4

6 1 2 3 HOW WILL IT WORK? The customer only sees Morrisons Demand Planning Suppliers Customer Morrisons.com Morrisons Manufacturing & DCs Dordon Inbound Outbound Spoke Customer Last mile 5

7 1 2 3 WHAT WILL THE IMPACT BE? Impact: Investment INITIAL: Total investment of 216m in this FY, including: Purchase of Dordon ( 82m), 50% of equipment ( 58m) plus 16m for our share of capacity extension Licence and integration fee: 30m Vans, spokes and Morrisons IT integration: 30m Group capex guidance increases to 1.2bn for this FY and full year net debt guidance increases to 2.7bn FUTURE: Joint funding for future CFCs (in proportion to capacity) and replacement capital as agreed by both parties 6

8 1 2 3 WHAT WILL THE IMPACT BE? Continuing operations R&D contribution: 8m p.a. for 2014/15 and 2015/16, then up to 1/3 of ongoing R&D costs, capped at 8m p.a. IT annual fee: 1% of sales to 1bn reducing scale thereafter Management fee: 4% of operating costs Bonus fee: 25% of positive Morrisons.com EBIT for 15 years, declining to 10% in years On EBIT over 6.6% post-fees, profit share increases to 50% of incremental profit We expect to reach EBITDA positive in 2016/17, with EBIT positive the following year 7

9 1 2 3 WHAT WILL THE IMPACT BE? Alignment and protections We have structured an agreement that has fundamentally aligned incentives and robust protections Ocado are obliged to: Provide Morrisons the best end-to-end operating model in the UK Provide Morrisons with the same standard of service as it provides to its own business Maintain performance vs. agreed SLAs or face penalty clauses e.g., reduced management fees Further protections are provided by: Change of control clauses, including termination rights in the case of acquisition by a competitor Exclusivity agreement for online groceries in the UK 8

10 Online Convenience Core Morrisons, M-Local, Morrisons.com Improving promotional effectiveness Emphasising points of difference Enhancing Own Brand Rolling out Fresh formats Driving growth in our convenience network Trading 100 stores by the end of the financial year Growing in geographies where we under-index Launching online offering Complementing our other channels Delivering our unique offer to customers doorsteps 9

11 Taking Morrisons online The Morrisons Difference, Delivered 17 May 2013

12 FURTHER DETAILS

13 1 2 3 HOW WILL IT WORK? Dordon CFC Dordon situated centrally in the country, with great transport connections on the M6 and M40/42 Well-placed to reach Morrisons northern heartland, as well as London and the South East 12

14 1 2 3 WHAT WILL THE IMPACT BE? Summary of Morrisons ongoing obligations COSTS CAPITAL CONTRIBUTION BONUS FEE EXCLUSIVITY OBLIGATIONS SALES OBLIGATIONS Dordon operating costs: 50% of the fixed costs and our variable costs Management fee: 4% surcharge on Morrisons share of operational costs of services provided by Ocado IT annual fee: 1% of sales to 1bn, then reduces R&D fee: 8m p.a. for 2014/15 and 2015/16, then up to a third of total ongoing R&D costs, capped at 8m p.a. to fund projects to improve CFC efficiencies Joint liability for replacement capex at Dordon Jointly fund future CFCs (in proportion to capacity) 25% EBIT share for first 15 years, followed by 10% for further 10 years if EBIT is above 6.6% then profit share increases to 50% 10% EBIT share for the following 10 years Morrisons may not operate any other online grocery platform in UK Morrisons obliged to generate minimum 100m sales at Year 3 and 200m at Year 5, if not met Morrisons exclusivity protection falls away 13

15 Disclaimer and cautionary statement This presentation is for information purposes only and does not constitute an invitation or inducement to underwrite, subscribe for or otherwise acquire or dispose of (or engage in any other investment activity in relation to) any Wm Morrison Supermarkets PLC ( Morrisons ) shares or other securities. No part of this document, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This presentation contains certain forward-looking statements. These include statements which are not statements of historical fact and may include, among things, statements relating to Morrisons strategies, plans, objectives, initiatives and targets, its businesses, outlook, potential future growth, operations, financial condition, results of operations and growth prospects, liquidity, capital resources and capital expenditures, expected industry trends and development of markets, anticipated cost savings, anticipated uses of cash and the expected outcome of contingencies, as well as the intention, beliefs or current expectations of Morrisons and/or its directors concerning the foregoing. The words believe, expect, anticipate, intends, estimate, forecast, project, will, may, should and similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties, because they relate to events and depend on circumstances that will occur in the future. They are also based upon assumptions which are subject to significant uncertainties and contingencies that are difficult or impossible to predict and are beyond Morrisons control. As such, these assumptions may prove to be inaccurate and Morrisons may not achieve or accomplish its expectations, beliefs or targets. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by any forward-looking statements contained in this presentation, including, but not limited to, the impact of competitive pricing, global and national economic conditions and trends in the grocery industry. Further, this presentation does not constitute a commitment by Morrisons to proceed with a certain transaction or business practice in the future. The information contained in this presentation is provided as at the date of this presentation and is subject to change without notice. Except as required by law or regulation, Morrisons undertakes no obligation to update or revise publicly any forward-looking statement or correct any inaccuracies which may become apparent, whether as a result of new information, future events or otherwise, except to the extent it would be required to do so under applicable law or regulation, and any opinions expressed herein are subject to change without notice. Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser. No reliance may be placed by any person for any purposes whatsoever on the information contained in this presentation or on the completeness of such information. Neither Morrisons nor anyone acting on its behalf makes any representation, express or implied, as to the accuracy or completeness of the information contained in this presentation. Neither Morrisons nor any person acting on its behalf shall have any liability whatsoever for loss, howsoever arising, directly or indirectly, from use of the information contained within this presentation. In particular, certain industry and market information in this presentation has been obtained by Morrisons from third party sources. This presentation has been prepared by Morrisons. Morrisons has not independently verified such information and none of Morrisons, anyone acting on its behalf or any other person provides any assurance as to the accuracy, fairness or completeness of such information or opinions contained in this presentation and none of such persons takes any responsibility for such information. 14